economics questions

1.which of the following is least likey a component of M2 money supply? a. savings deposits b. travellers checks c. Currency held by banks d. money market mutual funds 2. the amount of new money that can be created by commercial bank is most likely limited by the amount of that bank’s: a. actual reserves b. excess reserves c. required reserve d. deposits at the federal reserve 3. If inflation rate is greater than anticipated are workers and lenders most likely to gain or lose relative to employers and borrowers respectively? workers lenders a. gain gain b. Gain lose c. lose gain d. lose lose

  1. c 2. b 3. d guessing… took about 10 seconds each.


My guess work 1) a c i spart of the supply. I’d initiallly pick, b, but i know i am wrong so I’d have to say the answer is D. 2) c 3) b

  1. C - M1 2. C - Remember available lending/resere required ratio. 3. D - Lose Lose - Workers = Layoffs due to higher prices. Lenders lose due to rate on loans being eroded by inflation.
  1. © 2. (a) 3. (b) My $0.02

I would go with © (b) © Edit for the last quetion

  1. b- currency held in banks is not part of M1, currency NOT held in banks is part of M1 travelers’ checks are part of M1 2. c. required reserve- if the required reserve ratio is increased then less money can be created and if is decreased then more money is created just to put in short. 3. d. during unanticipated inflation workers and lenders both lose. Your fixed salary that you get per year can’t buy the same stuff that you could’ve bought lets say a year ago since prices have increase more than anticipated. Same thing goes for lenders-if i lend you $10000 and then suddenly there’s more inflation than i thought then i’m kind of screwed. That 10k i lent you lets say 2 years ago is not worth as much when you pay it back.

and the winners is topher. c b. d. lets give him a pat at the back for getting all the questions right! congrats topher!!!

  1. C - held by banks not included 2. C - required reserve limits how much they can lend out, thus limiting how much money is created 3. D - inflation is higher than expected, dollar in future periods is worth less, those receiving dollars in future periods are worse off - workers lose and employers gain as they are effectively paying them less and lenders lose and borrowers gain as they effectively have to pay back less.

I agree with cfatoronto and KJH for 2 and 3 but for 1 its d…all other are part of M2…remeber in order of higher to lower liquidity…M1 , m2, m3…money market mutual funds are least liquid of all

M2 = M1 + time deposits, savings deposits and money mkt mutual fund accounts.

sorry i misread the first question…it should be c

hey zerometer…i don’t think they cover M3 in level one…they only have M1 and M2 and the MM fund falls under M2.

I misread the second question. My logic was correct, but banks often keep more than the required reserve thus limiting the new money that can be created.

ya but all other three are more liquid…two types of mutual funds are there …one fall in m2 and other in m3…

It says in the text that currency at banks IS NOT part of M1, nor M2.