4. Use the figures in the table below to answer the following questions. (2 pts
ID: 1203927 • Letter: 4
Question
4. Use the figures in the table below to answer the following questions. (2 pts each)
*Billions*
Small time deposits 1260$
Money-market mutual funds held by businesses 1290$
Savings deposits, including moneymarket deposit accounts 1750$
Money-market mutual funds held by individuals 850$
Checkable deposits896$
Currency 340$
a) What is the value of M1?
b) What is the value of M2?
5. Jack deposits his money at Bank 1, while Maria deposits her money at Bank 2. Balance sheets for each bank are listed below.
Bank 1
Assets
Reserves $200,000
Property 600,000
Loans 600,000
Liabilities + Net Worth
Checkable deposits $ 400,000
Stock shares 1,000,000
Bank 2
Assets
Reserves $150,000
Property 250,000
Loans 600,000
Liabilities + Net Worth
Checkable deposits $300,000
Stock shares 700,000
a) What will the banks’ balance sheets look like when Jack writes a $50,000 check to Maria and the check clears? (Show the balance sheets for both banks after the transaction) (4 pts)
b) The reserve ratio is 20%. What are each bank’s excess reserves after the check clears in (a)? (2 pts)
(c) How many additional loans can each bank make if Jack were to write Maria another check for $100,000? (2 pts)
Explanation / Answer
4.
M1 = currency held outside banks + checkable deposits + travelers checks
= 896 + 340 = 1236
M2 money = currency held outside banks + checkable deposits + travelers checks + savings deposits + small-denomination time deposits + noninstitutional money market mutual funds
=1236+ 1260 + 1750+850 =5096
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