1. Identify whether each of the following is an example of adverse selection or moral hazard

A. Joe begins smoking in bed after buying fire insurance. B. Both of Susan's parents lost their teeth to gum disease, so Susan buys dental insurance. C. When Gertrude parks her Corvette convertible, she does not bother putting the top up, because her insurance covers theft of any items left in the car.

2. While cleaning your apartment, you look under the sofa cushion and find a $100 bill. You deposit the bill in your checking account. The Fed's reserve requirement is 20% of deposits. A. What is the maximum amount that the money supply could increase? B. What is the minimum amount that the money supply could increase? Recall that money multiplier = 1/required-reserve ratio. So, Deposits = Money supply = Initial deposit x Money multiplier].