Consider a country\'s monetary data (in billions of dollars): Calculate M1. Show
ID: 2469735 • Letter: C
Question
Consider a country's monetary data (in billions of dollars): Calculate M1. Show your computation. Calculate M2. Show your computation. Some of the items are not part of the money supply, neither M1 nor M2. What are these items and why are they not pan of the money supply? The following is a bank's balance sheet (in millions of dollars). What are the bank's actual reserves? Show your computation. Assume that the required reserve ratio is 10 percent. What are the bank's required reserves? Show your computation. What are the bank's excess reserves? Show your computation. Assume that all other banks begin with zero excess reserves. Now this bank lends out the entirety of its excess reserves, and, as the lending-deposit process enfolds, other banks also lend out all excess reserves. What is the increase in the money supply? Show your computation and explain your answer.Explanation / Answer
Answer
Answer 1
(In billions)
Figures in $
Particulars
amount
Currency in Circulation
a
15
Demand Deposits
b
10
Other Checkable deposits
c
2
M1 (a+b+c)
27
Answer 2
(In billions)
Figures in $
Particulars
amount
Currency in Circulation
a
15
Demand Deposits
b
10
Other Checkable deposits
c
2
Saving deposits
d
12
Small time deposits
e
4
M2 (a+b+c+d+e)
43
Answer 3
Interbank deposits and government deposits are not part of M1 or M2.
Inter-bank deposits are the deposits held by banks on behalf of other banks. Such deposits do not form a part of the money supply, as they do not belong to the public.
The stock of money held by government and the banking system are not included because they are suppliers or producers of money and cash balances held by them are not in actual circulation. So money supply includes currency held by public and net demand deposits in banks.
(In billions)
Figures in $
Particulars
amount
Currency in Circulation
a
15
Demand Deposits
b
10
Other Checkable deposits
c
2
M1 (a+b+c)
27
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