Suppose that you decide that you no longer want to hold currency, and deposit all of your currency holdings to your checking account. What is the immediate or initial impact of this transaction on M1 and M2?
What will be an ideal response?
Neither M1 nor M2 will change (at least not initially). Both checking account balances and currency holdings outside commercial banks are included in M1 and in M2. The decrease in currency holdings is perfectly offset by the increase in checking account balances.
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Why are firms usually unwilling to lower nominal wages?
What will be an ideal response?
Assuming the Federal Reserve makes an open-market purchase of a government security worth $10,000 . By writing a check to pay for this security, the Federal Reserve
a. reduces the balance of its assets by $10,000. b. reduces the balance of its liabilities by $10,000. c. neither reduces the balance of its assets nor the balance of its liabilities by $10,000. d. creates a new $10,000 liability against itself. e. both c and d are correct.
If the demand for a good is highly inelastic, a tax on the good
a. places the burden of the tax equally on buyers and sellers b. permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product c. reduces the profits earned by sellers since they must write the check to pay the tax d. makes the demand more inelastic e. makes the demand more elastic
Which of the following would be most likely to reduce the rate of unemployment?
a. a business recession b. an Internet job listing system that makes it easier to get information about job openings and available employees c. an increase in unemployment compensation benefits d. a rise in the minimum wage