Part 1:

1. What is the mission and legal mandate of the Federal Reserve System?
2. What policy tools are available to the Fed to achieve its mission?
3. What is the difference between an insolvent bank and an illiquid bank?
4. Why/how does the Fed treat banks that are insolvent differently from illiquid banks?

Part 2:

1. According to the Fed, what are its inflation and full-employment targets?
2. Explain how changes in the money supply will raise interest rates and how the anticipated increase in interest rates will likely affect GDP and employment.