Assume that the following asset values (in millions of dollars) exist in Ironman

Question

Assume that the following asset values (in millions of dollars) exist in Ironmania: Categony Value Federal Reserve notes in circulation Money market mutual funds (MMMFs) held by individuals Corporate bonds Iron ore deposits Currency in commercial banks Savings deposits, including money market deposit accounts (MMDAs) Checkable deposits Small-denominated (less than $100,000) time deposits Coins in circulation $ 700 400 300 50 100 140 1,500 100 40 Instructions: Enter your answers as whole numbers. a. What is M1 in Ironmania? million b. What is M2 in Ironmania? million

Explanation / Answer

Answer : a) Formula of M1 is,

M1 = Circulation of coins + Circulation of notes + Checking deposits [ To avoid double counting currency of commercial banks is not included in M1 ].

By putting given values we get,

M1 for Ironmania = 40 + 700 + 1,500 = 2,240 .

b) Formula of M2 is,

M2 = M1 + Time deposits of small denomination + Deposits of saving accounts + Mutual funds of money market

By putting given values we get,

M2 for Ironmania = 2,240 + 100 + 140 + 400 = 2,880 .

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