Problem
1. Suppose that $1,000 is moved from a savings account at a commercial bank to a checking account at the same bank. Which of the following statements are true and which are false?
a. The amount of currency in circulation will fall.
b. M1 will increase.
c. M2 will increase.
2. Explain why a reduction in the required reserve ratio cannot, at least initially, increase total reserves in the banking system. Is the same true of lowering the discount rate? What would happen if the Fed bought U.S. bonds from, or sold them to, the banking system?
3. Calculate M1 and M2 using the following information:
Large-denomination time deposits $ 304 billion
Currency and coin held by nonbanking public 438 billion
Checkable deposits 509 billion
Small-denomination time deposits 198 billion
Traveler's Checks 18 billion
Savings deposits 326 billion
Money market mutual fund accounts 637 billion
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.