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Chapter 27: Q.10 (page 662)

What components of money do we count as part of M1?

Short Answer

Expert verified

Cash and coin circulation, account checking, and many more we count as part of M1.

Step by step solution

01

Concept on M1.

The M1 phrase is commonly used to describe money, which encompasses cash and coin circulation, account checking, and so on. It's a highly liquid investment.

02

Explanation of solution.

The demand deposit, also known as a checkable deposit, is very near to the currency. They are the funds maintained in checking accounts. The demand deposit is maintained by banks because the depositor of money can demand their deposited amount at any moment via check or debit card, and the bank must comply. The M1is made up of these checking accounts and currencies. The traveller's check is likewise included in M1, but its use has decreased over time.

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Most popular questions from this chapter

What is the double coincidence of wants?

31. Humongous Bank is the only bank in the economy. The people in this economy have \(20million in money, and they deposit all their money in Humongous Bank.

a. Humongous Bank decides on a policy of holding 100%reserves. Draw a T-account for the bank.

b. Humongous Bank is required to hold 5%of its existing \)20million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans.

C. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original $19million loan?

What is the asset-liability time mismatch that all

banks face?

Explain why the money listed under assets on a bank balance sheet may not actually be in the bank?

What is the risk if a bank does not diversify its

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