1. What does ?nancial intermediation mean? What are the different ?nancial intermediaries in your country. Which of their liabilities would you classify as components of the monetary aggregates? Discuss.
2. Suppose that instead of imposing reserve requirements on demand deposits in the commercial banks, the central bank does the following: require automobile owners to hold $500 of non-interest-bearing deposits with the central bank.
i. How would the determination of the price level differ between the two arrange- ments?
ii. How would the real consequences of the two arrangements differ?
iii. Are there any special characteristics of demand deposits or any other reasons that make one of these arrangements preferable to the other?