Chapter 12. Money, Banking & the Financial System: Pre-Class & In-Class Activities Packet Name/I.D. Number: __________________________________________________ Section:______________ Date: ________________ 2. Money makes trade easier. Would having a money supply twice as large as it is currently make trade twice as easy? Would having a money supply half its current size make trade half as easy?________________________________________________________________________________________ _____ 4. Can M1 fall as M2 rises? Can M1 rise without M2 rising too? Explain. ________________________________________________________ ___________ 6. Explain the process by which goldsmiths could increase the money supply. ____________________________________________________

8. Identify each of the following as either an adverse selection or a moral hazard problem: a. Poor drivers apply for car insurance more than good drivers._____________________________________________________________ ________ b. The federal government promises to help banks that get into financial problems. _________________________________________ ____________ c. The federal government insures checkable deposits (promises to repay the holder of the checkable deposit if the bank fails). __________________ 10. Explain the difference between a bank's loans and its borrowings. _______________________________________________________ _______________