Review Questions

Links take you to to answers or hints. Although it is very tempting to do otherwise, you should make a serious attempt to answer a question before following the link. You will learn a lot about your mastery of the material by comparing your answer with mine. 
1.The Federal Reserve Bank of San Francisco's "Q&A on Monetary Policy" explains that three structural features help to make the Fed "independent within the government." What are these features, and what is meant by "within government"?
2. Almost a decade ago, while the rest of the economy had nicely recovered from a recession, California remained mired in a deep recession. What could the Federal Reserve have done to help California? What should it have done?
3. Why does the Fed have difficulty controlling the money supply?
4. Explain Friedman's arguments for limiting the power of the Fed to manipulate the money supply.
5. How would you characterize our ability to forecast economic activity? When are our forecasts most likely to be inaccurate, and why is this a problem?
6. Milton Friedman's claim that the Great Depression was caused by monetary policy turns on the size of the rise in expected real interest rates. Why do expected real interest rates matter for Friedman's story? Referring to data from the Great Depression, do you think the rise in expected real interest rates was large enough to explain the Depression?
7. Milton Friedman has been described as an economist of great stature. How tall is he?