Short-answer Problems

1. Why can't food be used as a form of money?

2. Discuss three major points about what gives money its value.

3. What are the functions of the Central Bank?Which one is most important?

4. Answer the next question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 25%. All figures are in billions of dollars.

Assets	Liabilities + Net Worth
Reserves$100 Securities200 Loans 100 Property 600	Checkable deposits$300 Stock shares 700

(a) What is the amount of excess reserves in this commercial banking system?

(b) What is the maximum amount that the money supply can be expanded?

(c) If the reserve ratio fell to 20%, what is now the maximum amount that the money supply can be expanded?

5. If our country is experiencing inflation, how does the central bank use the required reserves ratio to mitigate the effect of inflation?