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Calculate how much money your city has in circulation

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Reference no: EM132415221

Question 1:

You are the chief economist in Raccoon City, a small city in the Midwestern United States. You want to calculate how much money your city has in circulation. The table below is provided to you.

Cash/Currency: $1 million

Demand Deposits: $1.5 million

Small-Denomination Time Deposits: $2 million

Money Market Deposit Accounts: $5 million

Other Checkable Deposits: $2.5 million

Savings Deposits: $7 million

a) Calculate the M1 and M2 for this city.

Question 2:

Suppose that you are looking at the loanable funds market in Raccoon City. Due to a viral epidemic that is plaguing the city, you expect a recession to occur due AND a lower demand for products in the city.

a) What changes should be expected in the loanable funds market if the shifts are of equal magnitude (i.e. what happens to the equilibrium interest rate and quantity of funds)?

Reference no: EM132415221

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