Final answer:
The money supply (M1) can be calculated by considering the components such as currency held by the public, demand deposits, and other checkable deposits. In this case, the M1 is $1,140 billion.
Step-by-step explanation:
To calculate the money supply (M1), we need to consider the components. M1 includes currency held by the public, demand deposits, and other checkable deposits.
In this case, we are given the following data:
- Total reserves: $50 billion
- Transactions deposits: $800 billion
- Cash held by public: $350 billion
- Required reserve ratio: 0.05 billion
To calculate M1, we can use the following formula:
M1 = Currency held by public + Demand deposits + Other checkable deposits
Using the given data, we can calculate:
Currency held by public = Cash held by public = $350 billion
Demand deposits = Total deposits - Total reserves = $800 billion - $50 billion = $750 billion
Other checkable deposits = Required reserve ratio * Transactions deposits = 0.05 billion * $800 billion = $40 billion
Now, we can plug in the values:
M1 = $350 billion + $750 billion + $40 billion = $1,140 billion
Therefore, the money supply (M1) is $1,140 billion.