Explain what is included in M1 and M2. Is all of M1 money? Is all of M2 money?
What will be an ideal response?
M1 is equal to the sum of currency held by individuals and businesses plus traveler's checks plus checking deposits owned by individuals and businesses. These assets are all money because they are all a means of payment. M2 is equal to M1 plus saving deposits plus small time deposits plus money market funds. Not all of M2 is money because not all of M2 are a means of payment. In other words, some parts of M2, such as time deposits, cannot be used directly to make a purchase.
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What will happen to the sizes of the M1 money supply and the M2 money supply if the following transactions take place?
a. Tasha withdraws $3,000 from her checking account and holds it as currency. b. Arturo withdraws $3,000 from his savings account and deposits it in his checking account. c. Benjamin withdraws 3,000 from his savings account and puts it in a certificate of deposit (CD). d. Marisol withdraws $3,000 from her home safe and deposits it in her savings account.
The process of analyzing a problem in reverse-starting with the last choice, then the second-to-last choice, and so on, to determine the optimal strategy-is called:
A. backward induction. B. backward thinking. C. forward thinking. D. backward working.
What is true along the demand curve for a resource?
a. Prices of other resources are assumed constant. b. The marginal product of that resource remains constant. c. Total cost of production is assumed constant. d. The price of that particular resource is assumed constant. e. The quantity of that particular resource is assumed constant.
When actual reserves = required reserves, excess reserves = ____; when required reserves are greater than actual reserves, excess reserves are ______.
Fill in the blank(s) with the appropriate word(s).