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Chapter 27: Q.3 (page 662)

If you are out shopping for clothes and books, what is easiest and most convenient for you to spend: M1 or M2? Explain your answer.

Short Answer

Expert verified

The currency and checks in M1 are the easiest to spend.

Step by step solution

01

Given Information

Given in the question that, we are out of shopping and clothes.

We need to explain what is the easiest and most convenient to spend.

02

Explanation 

M1 and M2 cash are the two generally normally utilized meanings of money. M1 remembers cash for course in addition to checkable stores in banks. M2 incorporates M1 in addition to reserve funds stores (under $100,000) and currency market shared reserves. Therefore, the most easiest and convenient way to spend in shopping is M1.
03

Final Answer 

The most easiest and convenient way to spend in shopping is M1.

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Most popular questions from this chapter

What is the asset-liability time mismatch that all

banks face?

What is the risk if a bank does not diversify its

loans?

Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan if:

  1. The borrower has been late on a number of loan payments
  2. Interest rates in the economy as a whole have risen since the bank made the loan
  3. The borrower is a firm that has just declared a high level of profits
  4. Interest rates in the economy as a whole have fallen since the bank made the loan

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

For the following list of items, indicate if they are in M1, M2, or neither:

  1. Your 5,000 line of credit on your Bank of America card.
  2. 50 dollars’ worth of traveler’s checks you have not used yet .
  3. 1 in quarters in your pocket
  4. 1200 in your checking account
  5. 2000 you have in a money market account
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