Use the following to answer question 16: Table: Components of the Money System S

Question

Use the following to answer question 16: Table: Components of the Money System S100 300 50 700 75 mponeats ef the Money System (billions of dellars) Currency Checkable deposits Travelers cbecks Small-denomination time deposits Savings deposits 500 Money market mutual funds (individuals) Large-denomination time deposits Components of the Money System. The money supply measured by M1 A) $325 billion. B) $450 billion. 16. Table: Components of the Money Supply) Refer to the information C) $1,425 billion. D) $1875 billion. 17. Open-market operations occur when the Federal Reserve: A) buys U.S. Treasury bills from the federal government. C) buys or sells existing U.S. Treasury bills. D) sells U.S. Treasury bills to the federal government. 18. If a household's disposable income rises from $46,000 to $46,700 and its consumption spending rises from $35,800 to $36,400, then its A) marginal propensity to consume is 0.86 marginal propensity to consume is 0.98 marginal propensity to save is 0.01 marginal propensity to save is 0.86 B) C) D) 19. Which of the following is a pre-condition for healthy economic growth? A) a banking industry that's run by and for the government. B) a politically secure government that protects property rights C) government regulations that reduce competition. D) a government controlled by big corporations.

Explanation / Answer

16. B $450

M1 are physical money i.e. currency ($100) + Checkable deposits ( $300) + Traveller's checks ( $50) = $450.

17,C. Open market operations is the buying and selling of government securities in the open market by the Federal Reserve.

18. A. 0.86

MPC= Change in consumption/ Change in disposable income

Change in consumption = $36,400 - $ 35,800 = $ 600

Change in income = $46,700 - $46,000 = $700

MPC= $600/$700 = 0.86

19. B. Protecting property rights.

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