Question #1 Commodity money is a system in which a commodity is singled-out, and prices are expressed in terms of that quantity (e.g. gold or silver). What physical property would a commodity need to possess to be a good candidate to become money?

Question #2 In a commodity money system, what happens to the price level if the quantity available of the commodity rises?

Question #3 Consider a fractional-reserve banking system with a reserve ratio of 5% and an initial deposit of $2000.

a. Use T-accounts to show the effect of the next 2 rounds of deposits.

b. How large is the stock of money after the third round of deposits?

c. How large would the stock of money be once multiple deposit creation has run its course?

Question #4 Consider a fractional-reserve banking system with a reserve ratio of 5%, cash drain of 3% and an initial deposit of $2000.

a. Use T-accounts to show the effect of the next 2 rounds of deposits.

b. How large is the stock of money after the third round of deposits?

c. How large would the stock of money be once multiple deposit creation has run its course?

d. How different are your answers in Question 4 compared to Question 3?

Question #5 Briefly describe the functions filled by a central bank.