Concept explainers
Impact of transferring $1,000 from checking account to savings account on M1 and M2.
Answer to Problem 1KC
Option 'd' is correct.
Explanation of Solution
The money supply in the economy is calculated on the basis of various heads used to calculate the supply of money. The method that includes only cash in hand and the checkable deposits in the economy to measure the money supply is known as the M1 money supply. The measure of M2 money supply is more broader than the M1 as it includes all the components of the M1 as well as the components of the near money. The near money includes the savings deposits,
Option (d):
The M1 measure of money supply is calculated by summating the cash in hand and the checking accounts. Hence, when the transfer of $1,000 from the checking account to savings account takes place, it reduces the M1 money supply by $1,000 because the savings account is not included in the M1 measure. The M2 remains unchanged because the decrease in checking account is equally credited in the savings account and there is no total change in the amount of M2. This means that the option 'd' is correct.
Option (a):
The M2 remains unchanged because the decrease in checking account is equally credited in the savings account and there is no total change in the amount of M2, but since the M1 only includes the cash in hand and the checking account, the reduction in checking account decreases the M1. This makes option 'a' incorrect.
Option (b):
Since the only two components of the M1 money supply are the cash in hand and the checking account, the reduction of $1,000 from the checking account will reduce the M1 by $1,000. But since the checking account and the savings account are the components of the M2 money supply, the decrease in checking account will equally increase the savings account that keeps the total sum unchanged and thus the M2 remains unchanged. This means that the option 'b' is incorrect.
Option (c):
Since the only two components of the M1 money supply are the cash in hand and the checking account, the reduction of $1,000 from the checking account will reduce the M1 by $1,000. The M2 remains unchanged because the decrease in checking account is equally credited in the savings account and there is no total change in the amount of M2. This means that the option 'c' is also incorrect.
M1 money supply: The M1 money supply is the calculation of money supply that includes only the cash and the checking deposits.
M2 money supply: The M2 is the calculation of the money supply that includes all the elements of the M1 money supply as well as the near money that includes the savings accounts, money market securities, time deposits and so on.
Want to see more full solutions like this?
- answerarrow_forwardDiscuss the preferred deterrent method employed by the Zambian government to combat tax evasion, monetary fines. As noted in the reading the potential penalty for corporate tax evasion is a fine of 52.5% of the amount evaded plus interest assessed at 5% annually along with a possibility of jail time. In general, monetary fines as a deterrent are preferred to blacklisting of company directors, revoking business operation licenses, or calling for prison sentences. Do you agree with this preference? Should companies that are guilty of tax evasion face something more severe than a monetary fine? Something less severe? Should the fine and interest amount be set at a different rate? If so at why? Provide support and rationale for your responses.arrow_forwardNot use ai pleasearrow_forward
- For the statement below, argue in position for both in favor or opposed to the statement. Incompetent leaders can't be ethical leaders. Traditional leadership theories and moral standards are not adequate to help employees solve complex organizational issues.arrow_forwardpresentation on "Dandelion Insomnia." Poemarrow_forwardDon't used Ai solutionarrow_forward
- "Whether the regulator sells or gives away tradeable emission permits free of charge, the quantities of emissions produced by firms are the same." Assume that there are n identical profit-maximising firms where profit for each firm is given by π(e) with л'(e) > 0; π"(e) < 0 and e denotes emissions. Individual emissions summed over all firms gives E which generates environmental damages D(E). Show that the regulator achieves the optimal level of total pollution through a tradeable emission permit scheme, where the permits are distributed according to the following cases: Case (i) the firm purchases all permits; Case (ii) the firm receives all permits free; and Page 3 of 5 ES30031 Case (iii) the firm purchases a portion of its permits and receives the remainder free of charge.arrow_forwardcompare and/or contrast the two plays we've been reading, Antigone and A Doll's House.arrow_forwardPlease answer step by steparrow_forward
- Suppose there are two firms 1 and 2, whose abatement costs are given by c₁ (e₁) and C2 (е2), where e denotes emissions and subscripts denote the firm. We assume that c{(e) 0 for i = 1,2 and for any level of emission e we have c₁'(e) # c₂' (e). Furthermore, assume the two firms make different contributions towards pollution concentration in a nearby river captured by the transfer coefficients ε₁ and 2 such that for any level of emission e we have C₂'(e) # The regulator does not know the resulting C₁'(e) Τι environmental damages. Using an analytical approach explain carefully how the regulator may limit the concentration of pollution using (i) a Pigouvian tax scheme and (ii) uniform emissions standards. Discuss the cost-effectiveness of both approaches to control pollution.arrow_forwardBill’s father read that each year a car’s value declines by 10%. He also read that a new car’s value declines by 12% as it is driven off the dealer’s lot. Maintenance costs and the costs of “car problems” are only $200 per year during the 2-year warranty period. Then they jump to $750 per year, with an annual increase of $500 per year.Bill’s dad wants to keep his annual cost of car ownership low. The car he prefers cost $30,000 new, and he uses an interest rate of 8%. For this car, the new vehicle warranty is transferrable.(a) If he buys the car new, what is the minimum cost life? What is the minimum EUAC?(b) If he buys the car after it is 2 years old, what is the minimum cost life? What is the minimum EUAC?(c) If he buys the car after it is 4 years old, what is the minimum cost life? What is the minimum EUAC?(d) If he buys the car after it is 6 years old, what is the minimum cost life? What is the minimum EUAC?(e) What strategy do you recommend? Why? Please show each step and formula,…arrow_forwardO’Leary Engineering Corp. has been depreciating a $50,000 machine for the last 3 years. The asset was just sold for 60% of its first cost. What is the size of the recaptured depreciation or loss at disposal using the following depreciation methods?(a) Straight-line with N = 8 and S = 2000(b) Double declining balance with N = 8(c) 40% bonus depreciation with the balance using 7-year MACRS Please show every step and formula, don't use excel. The answer should be (a) $2000 loss, (b) $8000 deo recap, (c) $14257 dep recap, thank you.arrow_forward
