1. Suppose the Fed were required to conduct monetary policy so as to holdthe unemployment rate below 4%, the goal specified in theHumphrey–Hawkins Act. What implications would this have for theeconomy?2. The statutes of the recently established European Central Bank (ECB)state that its primary objective is to maintain price stability. How doesthis charter differ from that of the Fed? What significance does it havefor monetary policy?3. Do you think the Fed should be given a clearer legislative mandateconcerning macroeconomic goals? If so, what should it be?4. Referring to the Case in Point on targeting, what difference does it makewhether the target is the inflation rate of the past year or the expectedinflation rate over the next year?5. In a speech in January 1995,Speech by Alan Greenspan before theBoard of Directors of the National Association of Home Builders,January 28, 1995. Federal Reserve Chairman Alan Greenspan useda transportation metaphor to describe some of the difficulties ofimplementing monetary policy. He referred to the criticismlevied against the Fed for shifting in 1994 to an anti-inflation,contractionary policy when the inflation rate was still quite low:“To successfully navigate a bend in the river, the barge mustbegin the turn well before the bend is reached. Even so, currentsare always changing and even an experienced crew cannotforesee all the events that might occur as the river is beingnavigated. A year ago, the Fed began its turn (a shift toward anexpansionary monetary policy), and it was successful.”Mr. Greenspan was referring, of course, to the problem of lags.What kind of lag do you think he had in mind? What do yousuppose the reference to changing currents means?6. In a speech in August 1999,Alan Greenspan, “New challenges formonetary policy,” speech delivered before a symposiumsponsored by the Federal Reserve Bank of Kansas City in JacksonHole, Wyoming, on August 27, 1999. Mr. Greenspan was famousfor his convoluted speech, which listeners often found difficult tounderstand. CBS correspondent Andrea Mitchell, to whom Mr.Greenspan is married, once joked that he had proposed to herthree times and that she had not understood what he was talkingabout on his first two efforts. Mr. Greenspan said,We no longer have the luxury to look primarily to the flow ofgoods and services, as conventionally estimated, whenevaluating the macroeconomic environment in which monetarypolicy must function. There are important—but extremelydifficult—questions surrounding the behavior of asset prices andthe implications of this behavior for the decisions of householdsand businesses.The asset price that Mr. Greenspan was referring to was the U.S.stock market, which had been rising sharply in the weeks andmonths preceding this speech. Inflation and unemployment wereboth low at that time. What issues concerning the conduct ofmonetary policy was Mr. Greenspan raising?7. Suppose we observed an economy in which changes in the money supplyproduce no changes whatever in nominal GDP. What could we concludeabout velocity?8. Suppose price levels were falling 10% per day. How would this affect thedemand for money? How would it affect velocity? What can youconclude about the role of velocity during periods of rapid price change?9. Suppose investment increases and the money supply does not change.Use the model of aggregate demand and aggregate supply to predict theimpact of such an increase on nominal GDP. Now what happens in termsof the variables in the equation of exchange?