1. Bit coins are defined as a “peer-to-peer decentralized digital currency.” The supply of bit coins is not controlled by the government or any other central agency. The value of each bit coin is...

1. Bit coins are defined as a “peer-to-peer decentralized digital currency.” The supply of bit coins is not controlled by the government or any other central agency. The value of each bit coin is determined on the basis of supply and demand and is defined in terms of dollars. New bit coins can be generated through a process called “mining.” However, new bit coins will not be created once there are a total of 21 million bit coins in existence. Some commentators feel that bit coins can eventually replace most of the major currencies in the world. Would you agree? Explain your answer.

2. During a financial crisis, the central bank increases the supply of reserves, but the overnight call rate (similar to the federal funds rate) also increases. Use a graph to explain how this happens.