1. Discuss how the Producer Price Index could fall and economists may still worry that inflation may be a problem in the near future.

This question addresses the very theme of the article. Because energy prices and food prices can be so volatile in the short run, many analyst favor a measure of producer (and consumer) prices with those volatile measures omitted. As indicated by the September numbers, the PPI fell by 1.3 percent but when energy and food are removed the "core-index" rose by 0.6 percent. The Federal Reserve, and many other analysts, prefer this adjusted measure as a more accurate indication of any inflationary trend.

2. Visit the site http://financial-dictionary.thefreedictionary.com/Federal+Open+Market+Committee+-+FOMC and identify the make up of the Federal Open Market Committee (FOMC). Also find out how many times the committee meets each year, and look under "Federal Reserve Bank" to see where the District Banks are located. Do you think that the makeup of the FOMC is appropriate and representative of economic conditions across the U.S.? Why or why not?

When the students visit the free dictionary site they will find:

The FOMC is the branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the Board of Governors, which has seven members (appointed by the president and confirmed by the senate), and five reserve-bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other reserve banks rotate in their service of one-year terms. Student responses to the "representativity" of the FOMC may vary; some students will argue that too many Fed banks are in the eastern U.S., so that the western U.S. lacks an appropriate degree of influence. The fact that nine of the twelve banks are either east or very near the Mississippi River-in only 1/3 of the nation-and given the growing populations in the West, they may well feel that Dallas, Kansas City, and San Francisco, in rotation with the other District Banks, do not exert enough influence over Fed policy.

Notes:
The FOMC meets eight times per year to set key interest rates, such as the discount rate, and to decide whether to increase or decrease the money supply, which the Fed does through buying and selling government securities. For example, to tighten the money supply, or decrease the amount of money available in the banking system, the Fed sells government securities. The meetings of the committee, which are secret, are the subject of much speculation on Wall Street, as analysts try to guess whether the Fed will tighten or loosen the money supply, thereby causing interest rates to rise or fall.

Multiple Choice/True False Questions