CH 17 Econ 2301 - Question 1 Calculate the amount of...

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Question 1 Calculate the amount of currency in billions of dollars in the economy from the given information. Assume zero traveler’s checks for answering this question. Items Billions of $ Savings deposits 8,000 Money market mutual funds 700 M2 13,700 Checking deposits 2,250 Small time deposits 750 Correct Answer: c. 2,00 0. Response Feedback: We can write the equations for M1 and M2 as follows: M1 = Currency + Checking deposits M2 = M1 + Money market mutual funds + Small time deposits + Savings deposits Substituting for M1 in the second equation and plugging in the given information, 13,700 = Currency + 2,250 + 700 + 750 + 8,000 Solving the above equation, the amount of currency in the economy is equal to 2,000. Question 2 Which of the following are considered the same as money? Correct Answers: a. Checking account deposits d. $100 in your wallet Question 3 If the Fed wants to increase the money supply, then which of the following policy tools can it employ? Correct Answer: b.
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Lower the required reserve ratio.
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