April 19, 2015

Homework Help: Economics

Posted by Anne on Wednesday, November 29, 2006 at 2:41am.

From reading a paragraph, I gathered following facts.

Bills and coins outside the bank: 175
Checkable deposits 418
savings and time deposits 1782
currency inside bank 28
central bank deposit 186.

the banks reserve is 186+28=214
monetary base: 186 + 175 = 361
M1: 418 + 175 = 593
M2: 593 + 1782 + 186 = 2561

Am I right on above questions?

And also when was the last time the feds implemented the monetary policy by changing the required reserved ratio and/or the discount rate? I tried to googling but came up empty.

The symbols you have used are not clear. However, if the M2 means the bank created money, the you are wrong in determining the M2. M2 in that case will be determined by primary deposite multiplied by the 1/cash reserve ratio.

Anne is correct. M1 refers to the common definition of money as cash+demand deposits. M2 is a broader definition that includes certain highly liquid "time" deposits such as savings accounts.

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