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Directions: Answer the following questions. 1. What are the three functions of money? 2. What
is fractional reserve banking? 3. What differentiates the different monetary aggregates (i.e., M0,
M1, and M2)? 4. A U.S. government bond that pays the bearer $10,000 when it matures two
years from today currently sells for $9,245.56. What is the interest rate? 5. Is the Federal Reserve
a private institution or a government institutions? (Hint: This is a trick question.) 6. Suppose the
current reserve requirement for bank deposits is 10%. You deposit $100 in your bank and the
bank must retain 10% of your deposit on reserve. Assuming the bank does not wish to retain any
excess reserves, by how much did your $100 deposit increase the money supply?

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  • 1. Directions: Answer the following questions. 1. What are the three functions of money? 2. What is fractional reserve banking? 3. What differentiates the different monetary aggregates (i.e., M0, M1, and M2)? 4. A U.S. government bond that pays the bearer $10,000 when it matures two years from today currently sells for $9,245.56. What is the interest rate? 5. Is the Federal Reserve a private institution or a government institutions? (Hint: This is a trick question.) 6. Suppose the current reserve requirement for bank deposits is 10%. You deposit $100 in your bank and the bank must retain 10% of your deposit on reserve. Assuming the bank does not wish to retain any excess reserves, by how much did your $100 deposit increase the money supply?