If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from: a) the credit card company's M1 funds. b) his M1 funds. c) his M2 funds. d) the credit card company M2 funds.

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from: a) the credit card company's M1 funds. b) his M1 funds. c) his M2 funds. d) the credit card company M2 funds.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 3PA

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:

a) the credit card company's M1 funds.

b) his M1 funds.

c) his M2 funds.

d) the credit card company M2 funds.

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