Here we will dive into the role of money, and the interplay between borrowers and lenders. Be sure to be very detailed and through with your answers. Each question should be answered with at least 150 words.

1. (10 points) What is the principle-agent problem? Why is it important in lending/borrowing? What other areas might be affected by a similar problem? Give an example and explain.

2. (5 points) What is the difference between wealthand income? Why is this distinction important?

3. (10 points) What is a central bank? How does it differ from a bank? What is its role in the economy?