1) You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt.
a) How much money (M1) do you have?
b) What is your annual income?
c) How much wealth do you have?
2) If a person withdraws $500 from his/her savings account and puts it in his/her checking account,
a) will M1 increase, decrease, or not change?
b) will M2 increase, decrease, or not change?
3) If a person withdraws $500 from his/her checking account and holds it as currency,
a) will M1 increase, decrease, or not change?
b) will M2 increase, decrease, or not change?
4) Consider the information below for a simple economy. Assume there are no traveler's checks.
Currency: $1,000
Checking Account Balances: $2,000
Savings Account Balances: $5,000
Small-Denomination Time Deposits: $6,000
Noninstitutional Money Market Fund Shares: $7,000
a) What is M1 in this simple economy?
b) What is M2 in this simple economy?