(a) From the table below, calculate the M1 and M2 values of this economy's money supply.CurrencyCheckable depositsTraveler's checksSavings depositsSmall-denomination timedepositsNoninstitutional money marketmutual fund sharesMoney market deposit accountsValue (in billions)$9525513065RoundFirstSecondThirdFourth60(b) Suppose the commercial banking system in Canada has a target reserve ratio of 3%. A new immigrant to the country makes a cash deposit of $2,000 into his bank.Fill in the table below to show how deposits, reserves, and loans change as the new deposit permits the banks to "create" money by making the calculations. What is thetotal change in deposits after the first five rounds of deposit creation? What is the total change in bank deposits created by this initial $2,000 deposit for all possiblerounds of deposit? What is the total amount of new loans that can be created from the $2,000 deposit?A Deposits35A ReservesA Loans Interest RateiA0MsQuantity of MoneyMD (Y, P)

(a) Calculating M1 and M2M1: This includes the most liquid forms of money:Currency: $95Checkable…

Answered: Interest Rate iA 0 Ms Quantity of Money…

Business

Economics

Interest Rate iA 0 Ms Quantity of Money MD (Y, P)

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 1.2P

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Question

(a) From the table below, calculate the M1 and M2 values of this economy's money supply.
Currency
Checkable deposits
Traveler's checks
Savings deposits
Small-denomination time
deposits
Noninstitutional money market
mutual fund shares
Money market deposit accounts
Value (in billions)
$95
25
5
130
65
Round
First
Second
Third
Fourth
60
(b) Suppose the commercial banking system in Canada has a target reserve ratio of 3%. A new immigrant to the country makes a cash deposit of $2,000 into his bank.
Fill in the table below to show how deposits, reserves, and loans change as the new deposit permits the banks to "create" money by making the calculations. What is the
total change in deposits after the first five rounds of deposit creation? What is the total change in bank deposits created by this initial $2,000 deposit for all possible
rounds of deposit? What is the total amount of new loans that can be created from the $2,000 deposit?
A Deposits
35
A Reserves
A Loans

Interest Rate
iA
0
Ms
Quantity of Money
MD (Y, P)

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