Question

Suppose people are holding $10 million of currency, total checkable deposits in the banking system are $20 million, no one has any travelers' checks and total savings accounts deposits in the banking system are $15 million. In this case:___________a. Mi is $30 million. b.Ml is $35 million. c. Mi is $25 million. d. Mi is $45 million.

Answer 1

Answer: a. M1 is $30 million.

Step-by-step explanation:

M1 money supply is the most basic definition of money there is. It consists of actual cash and cash equivalents i.e. can be converted to cash relatively easily. Cash equivalents include checkable deposits and traveler's checks.

The M1 here is therefore:

= Currency + Total checkable deposits

= 10 + 20

= $30 million