1. You have $1000 in currency that you\'ve had in a desk drawer for a year. You
ID: 1109054 • Letter: 1
Question
1. You have $1000 in currency that you've had in a desk drawer for a year. You take that currency to the bank and deposit it into your checking account. Assume the money stays in your checking account and is not loaned out. Which of the following is correct? a. This deposit will increase M1 b. This deposit will increase both M1 and M2 c. This deposit will not increase M1 or M2 d. None of the above 2. In the Quantity Theory of Money which of the following is NOT an assumption that the theory is based on? (Note: I am not asking if the assumptions are correct or not; I'm simply asking what the assumptions are that the theory is based on) a. A change in the money supply does not affect the price level b. The velocity of money is generally stable and does not move. c. The money supply multiplied by the number of times money changes hands nominal GDP d. Actually, all of the above ARE assumptions built into the Quantity Theory 3, As we did in lecture, assume the reserve requirement is 8% and assume people keep 5% out as currency. If an initial deposit of $25,000 is made into a bank, which of the following comes closest to how much will total deposits be-including the initial deposit if all money that can be loaned out is loaned out and all of it is re-deposited, taking into account what people keep out as currency? a. $202,000 b. $306,000 c. $419,000 d. $312,000Explanation / Answer
First question is answered below
1. Correct option: (b) Both M1 and M2 will increase
Reason: Since M2 contains M1 and checking deposits are a part of M1 (and thus M2), an increase in checking deposits will increase both M1 and M2
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