Question

Suppose that a small country currently has $4 million of currency in circulation, $6 million of checkable deposits, $200 million of savings deposits, $40 million of small-denominated time deposits, and $30 million of money market mutual fund deposits From these numbers we see that this small country's Mi money supply is while its M2 money supply is
a. $250 million; $270 million
b. $210 million; $280 million
c. $10 million: $270 million
d. $10 million: $280 million

Answer 1

Answer:

Option (D) is correct.

Explanation:

M1 is the most liquid monetary aggregate.

M1 consists of:

M1 = Currency with the public + Demand deposits + Other deposits with the RBI

Therefore,

M1 = currency in circulation + checkable deposits

    = $4 + $6

    = $10

M2 is broader measure of money supply that includes the saving also.

M2 consists of:

M2 = M1 + Savings deposits + small-denominated time deposits + money market mutual fund deposits

     = $10 + $200 + $30 + $40

     = $280