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1 February, 16:14

Suppose that a small country currently has $4 million of currency in circulation, $6 million of checkable deposits, $200 million of savings deposits, $40 million of small-denominated time deposits, and $30 million of money market mutual fund deposits From these numbers we see that this small country's Mi money supply is while its M2 money supply is

a. $250 million; $270 million

b. $210 million; $280 million

c. $10 million: $270 million

d. $10 million: $280 million

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Answers (1)
  1. 1 February, 18:32
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    Option (D) is correct.

    Explanation:

    M1 is the most liquid monetary aggregate.

    M1 consists of:

    M1 = Currency with the public + Demand deposits + Other deposits with the RBI

    Therefore,

    M1 = currency in circulation + checkable deposits

    = $4 + $6

    = $10

    M2 is broader measure of money supply that includes the saving also.

    M2 consists of:

    M2 = M1 + Savings deposits + small-denominated time deposits + money market mutual fund deposits

    = $10 + $200 + $30 + $40

    = $280
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