Using the information below, answer the following questions on money: Currency outside banks Coins and Paper...

Using the information below, answer the following questions on money:

Currency outside banks
Coins and Paper money		110
Traveler’s cheques		4,340
Charter Banks Chequable deposits		140
TMLs & CUCPs Chequable deposits		50
Money market mutual funds		7,760
TMLs & CUCPs Total Deposit		1,600
Savings & Time Deposit		6,700

Part 1: The value of 'M1+' is:

Part 2: The value of 'M2' is:

Part 3: The value of 'M2+' is:

Expert Solution

The value of M1 is 4640

M1 includes all forms of liquid money—cash (or currency), coins, demand deposits held by the public with commercial banks are all part of M1 since they too (are withdrawable by cheques) and hence are known as acceptable forms of money. As well as travellers cheques which are also a part of liquid money as well as other chequable deposits.

Hence Coins and paper = 110 + Charter banks Chequable deposits = 140 + Traveller's Cheques = 4340 + TMLs & CUCPs Chequable deposits = 50

= M1 = 110 + 140 +4340 +50 = 4640

The value of M2 is = 11340

= M1 + Savings and Time Deposits = 4640 + 6700 = 11340

M2 includes components of money supply that are nearly convertible into liquid money yet are not as liquid as cash.

The value of M2+ = 20700

M2+ includes M2 and deposits with TMLs and CUCPs and deposits with mutual funds in the money market. These instruments are not as liquid as currency or components of M2 .

Hence M2+ = 11340 +7760+1600 = 20700

Rahul Sunny answered 1 year ago

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