Question

Consider the following information for a simple economy. Assume there are no traveler's checks. Currency is equal to $583, checking account balances are equal to $1,038, savings account balances are equal to $1,362, small-denomination time deposits are equal to $3,585, and money market fund shares are equal to $712. What does M1 in this simple economy equal to?

Answer 1

M1 money supply equals $1,621, consisting of currency ($583) and checking account balances ($1,038) in a simple economy.

Step-by-step explanation:

What does M1 in this simple economy equal to?

To calculate the M1 money supply for an economy, we include the total of currency and checking account balances, as these are the components that make up M1. According to the information provided, the currency equals $583 and the checking account balances are $1,038. It's important to note that savings account balances, small-denomination time deposits, and money market fund shares are not included in M1, but are part of M2.

Therefore, to find M1 we simply add the currency amount to the checking account balances:

• Currency: $583
• Checking account balances: $1,038

The sum of these amounts gives us:

M1 = Currency + Checking account balances
M1 = $583 + $1,038
M1 = $1,621

In summary, the M1 money supply in this simple economy equals $1,621.