econ 1p92

1. Watch or re-watch the video, "The Biggest Scam In The History of Mankind - Hidden Secrets of Money Ep 4," presented by Mike Maloney. Use the video to answer the following questions. Unless otherwise stated, you do not need to explain your answers. (a) In Step 1, what does the government do, through its Treasury department? (3%, (b) In Step 2, the commercial banks trade bonds with the Federal Reserve (Fed) for cheques, drawn against the Fed's account. How much does the Fed's account have in it? (3%) (c) In what three ways do commercial banks make a profit from this monetary system? (3%) (d) In Canada, what is the equivalent of the U.S. Federal Reserve? (3%) (e) Suppose that the United States were to adopt a system of full-reserve banking; that is, demand deposits would be illegal to lend out, and banks would only charge a nominal fee for safekeeping.' Would this help to fix the problems that Mike Maloney lays out in this video? Explain your answer. (18%) 2. Consider an economy in which banks are subject to a 5 percent reserve requirement. Assume that banks lend as much as they legally can. (a) What is the money multiplier in this case? (5%) (b) Suppose that Avraam deposits $1,000 in the bank. How much money is created? (5%)