Due Sunday 1126.17 at1145 Attempts: 0.5 4. Money supply basics The following is

Question

Due Sunday 1126.17 at1145 Attempts: 0.5 4. Money supply basics The following is a dialogue between two economics students who are studying for a test. Assuming Keep the Highest: 0.5/1 that Teresa correcty explains the money supply, fill in the blanks. SAM: I had to leave the lecture early. Did the professor talk about what determines the narrow definition of money supply? TERESA: The narrow definition of the money supply (M1) is made up of SAM: So how does the Fed control the money? TERESA: Well, the Fed controls the amount of currency directly through open-market operations, and it controls indirectly through the reserve requirement. SAM: What do you mean "indirectly? TERESAt Well, the Fed specifies the -of deposits banks are allowed to lend. The greater the reserve requirement, the total money the banks can lend SAM: So, if the Fed has only indirect control, what else affects it? reserves than the Fed species with the reserve requirement. TERESA: Well, can choose to hold- of deposits banks have available holding money atflect the Additionaly. SAM: OK, I guess that makes sense.

Explanation / Answer

Ans)

M1 consists of coins and currency+ checking amount+demand deposits and negotiable order of withdrawal(NOW)

money supply

amount of deposits
less

Banks
more
consumers preferences
total amount

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