Question 1

What are the three basic functions of money?Describe how rapid inflation can undermine money's ability to perform each of the three functions.

Answer each part of the question, and give details.

Question 2

What "backs" the money supply in the United States?What determines the value (domestic purchasing power) of money?How does the purchasing power of money relate to the price level?Who is the U.S. is responsible for maintaining money 's purchasing power?

Question 3

Explain why a single commercial bank can safely lend only an amount equal to its excess reserves but the commercial banking system can lend by a multiple of its excess reserves.What is the monetary multiplier, and how does it relate to the reserve ratio?

Give details and answer the questions fully.

Question 4

Suppose a bank discovers its reserves will temporarily fall slightly short of those legally required.How might it remedy this situation through the Federal funds market?Now assume the bank finds that its reserves will be substantially and permanently deficient.What remedy is available to this bank?