suppose five people go to a bookstore and each person buys one book from the top 10 bestseller list. find the probability that all five people purchase; a) the same bok. b) the book that is #1 on the list. Solution a ) 10 * (0.1)^5 = 1/10^4 b ) 0.1^5 = 1/ 10^5.

1. Suppose for a moment that someone with legislative power decides to abolish Fractional Reserve
Banking and passes a law that forces banks to only lend the money they own, that is M0. What
would be the economy-wise implications of such a change in the long run and what in the short
run? In particular with such a criteria in mind as mortgages, interest rates and dispossessions.
Solution
There is a long standing problem in most discussions of Fractional Reserve Banking (FRB),
around the precise definition of money. Cash money (that is M0) is an asset on the banking
system balance sheet, while deposit money (the liability) is the money that is created by lending.
Ever since the introduction of cheques specifically, and in general the ability to make direct
transfers between two deposit accounts, deposit money has been the de facto form of money that
is used in the economy. Cash money is maintained at a fractional reserve of deposits (it used to
be a regulator of total deposits and lending, but in practice this isn