Jane Doe has the following assets: $100 in her wallet $800 in her demand deposit account $1,000 in her savings account A $50 traveler’s check from her last trip to China A $300 outstanding credit card bill A car worth $5,000 A house worth $200,000 Identify which of the assets are included in M1, which are in M2, or neither M1 nor M2. ii) Suppose she takes $400 for her demand deposit account and deposits it in her savings account. What is the change in M1 and M2? b) Many savers choose to hold their funds at a financial intermediary instead of lending them directly in financial markets. Explain TWO (2) reasons why financial intermediaries and indirect financing are so important in financial markets.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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QUESTIONS 1

Jane Doe has the following assets:

$100 in her wallet

$800 in her demand deposit account

$1,000 in her savings account

A $50 traveler’s check from her last trip to China

A $300 outstanding credit card bill

A car worth $5,000

A house worth $200,000

Identify which of the assets are included in M1, which are in M2, or neither M1 nor M2.

ii) Suppose she takes $400 for her demand deposit account and deposits it in her savings account. What is the change in M1 and M2?

b) Many savers choose to hold their funds at a financial intermediary instead of lending them directly in financial markets. Explain TWO (2) reasons why financial intermediaries and indirect financing are so important in financial markets.

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