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.

Answer:correct option is a. $10 million; $280 millionExplanation:given datacash = $4 million

check able deposits = $6 million

savings deposits = $200 million

time deposits = $40 million

mutual fund deposits = $30 million

to find outM1 money supply and M2 money supply

solutionwe 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