Examine the nature of the fractional-reserve banking system in the United States, and discuss in detail the tools employed by the Federal Reserve (Fed) to manage the money supply. As you do so, address three of the following (and only three) assigned concepts in conjunction an assigned question:
Concept: Open Market Operations (OMOs)
Question: What is purpose of OMOs, and how does the buying and selling of US securities by the Fed influence the Federal funds market?
Concept: Discount and Federal Funds Target Rates
Question: What is the distinction between the discount rate and the Federal funds target rate? Are both rates directly controlled by the Federal Reserve?
Concept: Required Reserve Ratio / Deposit Expansion (Money) Multiplier
Question: How is the required reserve ratio related to the concepts of required and excess reserves? Also, how do changes in the required reserve ratio impact the deposit expansion (money) multiplier? Note: be sure to note the formula for the deposit expansion (money) multiplier.
Concept: Fractional-Reserve Banking System
Question: What is the economic purpose of a fractional-reserve banking system?
The key to the assignment is to demonstrate your knowledge of three of the assigned concepts. Assignments should be clearly organized, succinct, informative, coherent, and thoroughly based upon an analysis of the assigned concepts. Always keep in mind that the key to the assignment is to demonstrate your mastery of the three assigned concepts you select, the topic question(s) are included only to place your analysis of the assigned concepts into context. Don’t become overly concerned with the topic to the detriment of a detailed discussion of the assigned concepts.
Assignment Format
Section 1
Include a brief introductory paragraph comprised of a statement of purpose for your assignment – what are you going to do and how are you going to do it.
Sections 2 through 4
Here you will have a one to two paragraph section for each of the 3 assigned concepts you select. With each of your three assigned concept sections begin by first fully defining and explaining the assigned concept in your own words, only then move to apply the assigned concept in the context of the connected topic question.
Section 5
This should be a brief concluding paragraph to summarize the key elements articulated in your assignment.
Section 6
While you should define and explain your three selected assigned concepts in your own words, you should be prepared to supplement your understanding of the topic questions with research. Be sure to cite any resources used in this section.
Sample Solution
