Here is the optional assignment to be completed in lieu of class Thursday, Nov. 16. Please turn this in to me in class on Nov. 28 (or email it to me, in Word format, as an attached file).

What are dynamic and defensive transactions in open market operations?

Explain discount policy. What are its advantages (from the point of view of the Fed?) Explain and give examples of adjustment, seasonal, and extended credits. Explain its use creating announcement effects.

Explain how the Fed uses margin requirements to achieve its goals. (Here is my article comparing asset bubbles in the 1920s and the 1990s.) What is moral suasion?

Why did Congress pass the Federal Reserve Act in 1913 when the United States had gotten along without a central bank since 1836?

Explain the circumstances under which expansionary policy is likely to cause inflation, and not output. Even if the policy causes more growth than inflation, at least in the short run, what effect does credit-induced growth have on the business cycle?

See how rich you are (but remember that wealth distribution does not imply a zero-sum game).

Of the identity theft victims who know the person who stole their financial identities, half of the perpetrators were family members, according to this article in the New York Times:

Mr. Wagenhauser’s former wife, Ivy Ash, began applying for credit cards in the children’s names soon after the divorce. She ran up about $200 in unpaid bills, he said, which grew to about $1,000 with late fees and interest penalties. She pleaded guilty to two counts of fraudulent use of a credit card this year and is now in a Texas prison.

But the effect of the thefts is still being felt in the Wagenhauser household. “This has been a financial strain, and to be quite honest, you can hear my wife and I bickering right now over this,” said Mr. Wagenhauser, a Houston construction worker. “We’ve had to go into marriage counseling ourselves because this has been so stressful on our own marriage, just dealing with it, the fighting, the arguments.

What incentives do financial institutions have to fight this problem? Is this an example of market failure, requiring government intervention, or does the problem itself perhaps reflect previous interventions by government in financial markets? Assume that private ratings agencies rated financial institutions on their identity theft protection efforts. What advantages or disadvantages would this service have over (say) government regulations requiring basic identity theft protection measures?