Monetary Analysis Problems

Mini-essays (suggested length: a couple paragraphs each for Parts A, B, and C; four concise bullet points for Part D)

A. Why do people who work at investment banks earn so much?

B. What is the justification for capital requirements imposed by bank regulators?

C. Suppose a country decides it will either dollarize or create a currency board. Of these two options, why might dollarization be a better choice? Why might a currency board be a better choice?

D. Suppose the Federal Reserve surprises everyone by sharply raising the federal funds rate. Explain how this action is likely to affect the nominal interest rates on (i) three-month Treasury bills (ii) ten-year Treasury bonds (iii) ten-year AAA corporate bonds and (iv) ten-year junk bonds. Compare the sizes