Macroeconomics: Private and Public Choice
15th Edition
ISBN: 9781285453545
Author: Russell Sobel; Richard Stroup; James Gwartney; David Macpherson
Publisher: South-Western College Pub
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Question
Chapter 13, Problem 2CQ
To determine
Identify the effect in the M1 money supply and the reason for adding interest-earning checkable deposits into M1.
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M1 and M2 are two measures of money supply. M1 includes only the most liquid forms of money like currency, checking account deposits, and traveler’s checks. M2 includes all of M1 along with some less liquid forms of money like savings accounts and money market deposits.
Suppose you transfer $2,000 from your mutual fund account to your checking account. What is the immediate impact of this transfer on M1 and M2 as per the economy?
If the required reserve ratio is 8 percent, currency in circulation is $350 billion, checkabledeposits are $500 billion, and excess reserves total $100 billion, then what impact would a$100 million increase in the monetary base have on the money supply?
Economists have several ways of defining what they mean by the "supply of money." Which of the following is common to both the M1 and M2 definitions of the money supply? A. Small time deposits B. Checkable deposits C. Savings deposits D. Money market mutual funds
Chapter 13 Solutions
Macroeconomics: Private and Public Choice
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Similar questions
- What is the defining difference among our various measures of money supply, such as M1 and M2? The defining difference is origin, whether the money is issued by the Federal Reserve Bank or the Federal Government The defining difference is liquidity, how quickly the instrument could be turned to cash and expended The defining difference is regulation, how much control the Federal Reserve Bank has over the relative amounts of M1 or M2 in circulation The defining difference is function, whether the money is used to meet transactions demand or asset demandarrow_forwardA deposit of $100 was made to the bank as we know the money supply won't increase until the bank loans the $100. If the required reserve ratio is 6%, how much will the money supply ultimately increase once this new deposit has gone all the way through the system? What is the money multiplier in this case?arrow_forwardThe economy of Lykesville currently has $15,000 worth of currency in circulation, $20,000 worth of checkable deposits, $1,300 worth of traveler's checks, and $44,000 in savings accounts. Calculate M1:arrow_forward
- During the Great Depression, some 9000 banks went bankrupt, 4000 in 1933 alone. Given this is a fractional reserve system, what would happen to Money (M1)/money multiplier, if demand deposits at bankrupt banks became worthless due to widespread bankruptcy in the banking system ?arrow_forwardIf a bank has $100,000 in deposits and holds $5,000 in required reserves, what is the value of the money multiplier?arrow_forwardThe banking system has $5,000 in reserve, $45,000 in loans, and $50,000 in deposits. Currently the reserve requirement is 10%. If the Fed lowers reserve requirement to 5%, the banking system converts 75% excess reserves to loans, but borrowers return only 60% of these funds to the banking system as deposits. What is the maximum amount of loans the banking system could make?arrow_forward
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