A bank has checking deposits of $400, saving deposits of $900, time deposits of $900, loans of $950, government securities of $900, outstanding credit card balances of $400, currency in its vault of $40, and deposits in its reserve account at the Fed
of $40. a. What is the amount of this bank's deposits that are in M1? b. What is the amount of this bank's deposits that are in M2? c. What is the amount of this bank's reserves?
a. The only deposit that is in M1 is the checking deposits, so the amount of this bank's deposits that are in M1 is $400.
b. Deposits in M2 include checking deposits, saving deposits, and time deposits. Therefore the amount of this bank's deposits that are in M2 equals $400 + $900 + $900 = $2,200.
c. Reserves are the sum of the currency in the bank's vault plus its deposits in its reserve account at the Fed. Therefore the bank's reserves are $40 + $40 = $80.
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