Question

1.Name a currency? a.Why will M1 never have as much money as M2? b.Is M1 or...

1.Name a currency?

a.Why will M1 never have as much money as M2?

b.Is M1 or M2 more liquid?

2.Which is more liquid and why?

3.You own a bank and people deposit savings into your bank. Are these deposits an asset or liability for your bank?

a.You own a bank and give loan money to the applicants you approve. Are these loans an asset or liability for your bank?

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Answer #1

a) The currency is British pound.

M1 will never have as much as much money as M2 because M2 include more items that are not that liquid. It is a sum of M1 and more components that were not as liquid to be included in M1.

b) M1 is more liquid as it contains items like currency in circulation, demand and saving deposits etc, all these can be quickly converted into cash.

c) People deposit are liability for the banks as it has to be returned to the people.

d) Loans given to the people are an asset to the people as the banks will receive those loans back.

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