Reference no: EM132062019

There Federal Reserve has as its two main goals: A. Economic Stability = A goal of an economy with low unemployment and low inflation. (Active monetary policy) B. Financial Stability = A goal of a stable financial sector. (Lender of last resort) Consider both of those goals and answer the following questions.. 1. Let’s introduce the concepts of a financial sector. Do this by explaining the difference between money, bonds and stocks. 2. Let’s understand the basics of the financial sector by addressing the following two ideas: (a) first, explain what positive role the financial sector performs in an economy. (b) Please explain the fundamentals of banking and why it is inherently unstable and vulnerable to ‘bank runs’ 3. Let’s explain how the Federal Reserve might actively attempt to achieve one of its goals – economic stability – namely, low inflation. In short, if an economy is facing an inflationary period, explain in detail how the Federal Reserve’s Open Market Committee would respond. (I expect graphs and explanations) 4. Finally, using the Great Recession as your starting point and the basis for your answers, explain how the Federal Reserve attempted to achieve (a) Economic Stability and (b) Financial Stability. (I expect a very good detailed answer with (i) an explanation of the financial market and its problems during the Great Recession (ii) money market and bond market graphs as well as (iii) details about specific Federal Reserve policies and their desired effect and why.)