Question

Use the information in the table below:
Items Billions of $
Savings deposits 7000
Money market mutual funds 700
M2 13700
Checking deposits 2250
Small time deposits 750
1. What is M1?
2. Now, calculate the amount of currency in billions of dollars in the economy from the given information (assume no traveler's checks).

Answer 1

Answer:

1. $5,250 billion.

2. $3,000 billion.

Explanation:

1. M1 = M2 - Savings deposits - Money market mutual funds - Small time deposits

M1 = $13,700 billion - $7,000 billion - $700 billion - $750 billion

M1 = $5,250 billion

Thus, M1 is $5,250 billion.

2. Currency in circulation = M1 - Checking deposits  

Currency in circulation = $5,250 billion - $2,250 billion

Currency in circulation = $3,000 billion

Thus, the amount of currency in circulation is $3,000 billion.