Part I Short Problems (50 marks) 01. Predict what will happen to the money supply if there is a sharp rise in the reserve ratio. Answer: Q2. Discuss the following argument: Money market funds attract money from investors who do not know what else to do with their money. Thus, money market funds are merely a last resort when there are no better alternatives for investment. Since they invest only in short-term securities, they do not play a role in financing economic growth Answer: 03. Briefly explain the effect of open market operations on money supply. Answer: 04. Would moral hazard and adverse selection still arise in financial markets it = information were not Asymmetrie? Explain