Question

A.) Given the following:

coin and currency in circulation $500 million

Traveler's checks $10 million

Currency in banks $750 million

Savings Deposits: $900 million

money market accounts and deposits $2000 million

small time deposits $800 million

checking deposits $720 million

calculate M1 and M2 from the above. show work

B.)

A bank has $100 million in deposit liabilities. it has a reserve ratio of .10 and total reserves of $12 million.

calculate excess reserves and required reserves. show work.

say the bank lends its excess reserves by opening a checking deposit for the borrower. calculate required and excess reserves now. assume nothing else changes. show work

thanks in advance. you guys are the best!

Answer 1

Ans:

A)

M1 = $500 million + $750 million + $10 million + $720 million

= $1980 million

M2 = $1980 million + $900 million + $2000 million + $800 million

= $5680 million

M1 includes coins and physical currency, demand deposits, travelers checks, checkable deposits and negotiable order of withdrawal (NOW) accounts

M2 includes all elements of M1 as well as "near money."Near money includes savings deposits, money market securities, mutual funds and other time deposits.

B)

Required reserves = $100 million * 0.10

= $10 million

Excess reserves = Total reserves - Required reserves

= $12 million - $10 million

= $2 million

when the banks lends its excess reserves by opening a checking deposit for the borrower, then the bank does not need to maintain any reserves for the amount of excess reserves.however if the balance of checking deposit is used to lend then reserve requirement is necessary.

Required reserves = $10 million

excess reserves = 0