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: Federal Reserve Notes in circulation = $700; Money market mutual funds (MMMFs) held by individuals = $400; Corporate bonds = $300; Iron ore deposits = $50; Currency in commercial banks = $100; Savings deposits, including money market deposit accounts (MMDAs) = $140; Checkable deposits = $1,500; Small-denominated (less than $100,000) time deposits = $100; Coins in circulation = $40.

a) What is M1 in Ironmania?

b) What is M2 in Ironmania?

Explanation / Answer

M1 = cash and checking account deposits
M2 = M1 + savings accounts & money market accounts
M3 = M2 +large deposits and other large, long-term deposits.

M1 = Fed reserve notes in circulation+coins in circulation+check able deposits+Currency in commercial banks

= 700+40+150+100 = 990

M2 = M1+small denominated (less than 1 lac$) time deposits+ saving deposits including MMDAs+ money market MF held by individual+corporate bonds

= 990+ 100+140+400+300= 1930

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