1. What is the value of M1 if the following is true? Coin and Currency: $80 mill

Question

1. What is the value of M1 if the following is true?

Coin and Currency: $80 million
Demand Deposits: $190 million
Savings Deposits: $400 million
Traveler's Checks: $10 million
Time Deposits: $800 million

2.If you use money as a unit of account, you would be

3.

Assets

Liabilities

$60,000

$200,000

$130,000

$10,000

The balance sheet above shows the financial situation for the Jamestown National Bank. The central bank has set a required reserve ratio of 10%. If the bank does not sell any of its securities, what is the maximum amount of additional loans the bank in Jamestown can undertake?

1. What is the value of M1 if the following is true?

Coin and Currency: $80 million
Demand Deposits: $190 million
Savings Deposits: $400 million
Traveler's Checks: $10 million
Time Deposits: $800 million

$280 million $590 million $1,200 million $1,390 million $1,480 million

2.If you use money as a unit of account, you would be

searching the Internet for a deal on a new computer. returning a sweater to the department store. buying a new radio. withdrawing $500 from your savings account. putting money in a savings bond.

Explanation / Answer

1. M1 = Coin and Currency + Demand deposits + Traveler's check

= $(80 + 190 + 10) million = $ 280 million

2. withdrawing $500 from your savings account.

Measure of Value or Unit of Value: Money serves as a measure of value in terms of unit of account. Unit of account means that the value of each good or service is measured in the monetary unit. Measurement of value was very difficult in the barter system: one good was valued in terms of the other. There was no common unit of value. An introduction of money has removed this difficulty. Now, each good is valued in terms of money.

3. $40,000

Required reserve = 10% of demand deposits = 10% of 200,000 = 20,000

Actual reserve = 60000

Excess reserve = 60000 - 20000 = 40000

So, bank can also give loan of $ 40,000.

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