1. Draw a graph depicting interest rates at the quantity of loanable funds. Answer the following questions regarding this graph. (40 possible points)
2. Explain why the supply of loanable funds is upward sloping.
3. Explain why the demand of loanable funds is downward sloping.
4. If the Federal Reserve sells government bonds, show what will happen to thisgraph. Explain the effects on interest rates and the quantity of loanable funds.
5. If the Federal Reserve lowers the required reserve rate, show what will happen to thisgraph. Explain the effects on interest rates and the quantity of loanable funds.
7. List and explain the logic behind the "four functions of money." Then, consider the following: Inmany prisons, cigarettes are used as money. Do cigarettes in prison have the ability to satisfythese four functions? Explain. (20 possible points)
9. For each of the following questions, evaluate whether the statement is "true" or "false". Then,provide a brief explanation to justify your answer. (40 possible points)
10. If the velocity of money increases and nothing else changes, nominal GDP will rise.
11. If the required reserve rate is 5%, bank runs will be more likely than if the requiredreserve rate is 20%.
12. If the required reserve rate is increased from 10% to 20%, the amount of money insociety will double.
13. If the value of M1 increases and nothing else changes, the value of M2 will also increase.