Suppose that a small country currently has $4 million of currency in circulation, $6 million of checkable deposits, $200 million of savings

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 M1 money supply is _________, while its M2 money supply is __________.

a. $10 million; $280 million.
b. $10 million; $270 million.
c. $210 million; $280 million.
d. $250 million; $270 million.

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  1. Answer:

    correct option is a. $10 million; $280 million

    Explanation:

    given data

    cash = $4 million

    check able deposits = $6 million

    savings deposits = $200 million

    time deposits = $40 million

    mutual fund deposits = $30 million

    to find out

    M1 money supply and M2 money supply

    solution

    we get here M1  that is

    M1 = Cash + check able deposits     ………..1

    put here value

    M1 =  $4 + $6

    M1 = $10 million

    and

    M2 will be here as

    M2 = M1 + saving deposits + time deposits + mutual fund deposits ……………2

    put here value

    M2= $10 + $200 + $40 + $30

    M2 = $280 million

    so correct option is a. $10 million; $280 million

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