4. (5 marks) Answer the questions below based on the data in the following table

Question

4. (5 marks) Answer the questions below based on the data in the following table. (All figures are in $ billions.) Total currency issued by the Bank of Canada Total personal savings deposits & personal term deposits Total demand deposits Deposits of the federal government at the Bank of Canada Currency held by the commercial banks Government bonds owned by the public Nonpersonal fixed-term deposits (certificates of deposit) $45 270 65 54 165 105 What is the amount of currency in circulation? Calculate M1. How much larger is MI than the amount of currency in circulation? Calcuulate M2. How much larger is M2 than M1? Calculate M3. How much larger is M3 than M2? a) b) c) d)

Explanation / Answer

Money is an important factor to any economy because, it makes transaction easy and explains the fluctuations in price level which affects many economic activity. The money is a medium of exchange, a store of value, and a unit of account. In modern day economy there are many ways to measure supply of money.

A given monetary aggregate is simply the sum of a number of different assets for the U.S economy. There are three monetary aggregates: M0, M1, M2, and M3.

Therefore,

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