Question

Say you withdraw $500 in cash from your checking account. As a direct result of this...

Say you withdraw $500 in cash from your checking account. As a direct result of this transaction, a. What has happened to M1? b. What has happened to M2?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

NO,changes will be made to either M1 or M2.

Explanation-

M1=Currency+Demand Deposits+Trvelers's Cheque+Other Chequable Deposits

When $500 is withdrawn currency increases by $500 but at the same time,demand deposits decreases by $500.So,net effect remains same.

M2=M1+Near Money(savings deposits,money market securities,mutual funds and small time deposits)

Since the withdrawa of $500 in cash from your checking account does not affect any items of M2,it remains the same.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are going to withdraw cash from your checking account. Illustrate how the transaction impacts the...
You are going to withdraw cash from your checking account. Illustrate how the transaction impacts the supply of money, the reserve bank, and the excess reserve at your bank. (Use a diagram and a written explanation).
Suppose Tabatha takes $500 from her savings account and deposits it in her checking account. What...
Suppose Tabatha takes $500 from her savings account and deposits it in her checking account. What is the change in M1 and M2? a. M1 and M2 both remain unchanged b. M1 and M2 both increase c. M1 increases and M2 remains unchanged d. M1 increases and M2 decreases e. M2 increases and M1 remains unchanged
27. Assume that you need to withdraw $100 from your checking account using your bank’s ATM...
27. Assume that you need to withdraw $100 from your checking account using your bank’s ATM machine. What set of steps does the DBMS need to perform to complete your transaction?
2. Assume that Jimmy Cash has $2000 in his checking account at Folsom Bank and he...
2. Assume that Jimmy Cash has $2000 in his checking account at Folsom Bank and he deposits $400 from his tip income in it. By what dollar amount, if any, did the i) M1 and ii) M2 change as a result of this single, isolated transaction?
1. Suppose you deposit $5,000 cash into your checking account deposit at Bank and that the...
1. Suppose you deposit $5,000 cash into your checking account deposit at Bank and that the required reserve ratio is 10%. As a result of your deposit, this bank can make a maximum loan to other customers of a. $500 b. $4500 c. $5000 d.$50000 2. If you withdraw $2,000 from your term deposit account and put it in your checking account, M1 will _____ and M3 will ____. 3. In 2015, the inflation rate of Venezuela reached 181%. In...
1. Assume Fred has $500 in cash and that this is the entire monetary base. Assume...
1. Assume Fred has $500 in cash and that this is the entire monetary base. Assume that the reserve requirement for banks is 5% and that reserves are taken on checking accounts but not money market accounts. a. What is the current level for M1 and M2? b. If Fred deposits the $500 into his checking account what happens to M1 and M2? . What are the required reserves? How much is the bank excess reserve ? c. The bank...
Suppose your bank reduces the interest rate on your savings account. You transfer $200 from your...
Suppose your bank reduces the interest rate on your savings account. You transfer $200 from your savings account to your checking account. What is the overall effect on M1 and M2?
Suppose that you deposit $2000 in currency into your checking account at the branch of a...
Suppose that you deposit $2000 in currency into your checking account at the branch of a bank, which is assumed to have no excess reserves at the time you make your deposit. Also assume that the reserve requirement ratio is 20%. a) Show the initial impact of this transaction on the bank’s T-account: b) Suppose the bank makes the maximum loan it can from the funds you deposited. How does the T-account change? c) What is the maximum increase in...
Tracy Williams deposits $500 that was in her sock drawer in a checking account at his...
Tracy Williams deposits $500 that was in her sock drawer in a checking account at his local bank. a) How does the deposit initially change the T-account of his local bank? How does it change M1? M2? b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit? What will it do? c)If every time a bank makes a loan they create new money that wasn’t there before, by how much could the...
You deposit $3,000 in currency into your checking account at Elmo's Bank, which has no excess...
You deposit $3,000 in currency into your checking account at Elmo's Bank, which has no excess reserves. The required reserve ratio is 20%. a. Use a T-account to show the initial effect of this transaction on Elmo's Bank balance sheet. b. Suppose Elmo's Bank makes the maximum loan it can from the funds you deposited. Use a T-account to show the initial effect of granting the loan on Elmo's Bank balance sheet. c. What is the maximum increase in checking...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT