P5: The following information is available to you: travelers’ checks = $1 million; coin and paper currency = $30 million; repurchase agreements and Eurodollars = $15 million; demand deposits = $25 million; retail money market mutual funds = $60 million; savings accounts at depository institutions = $40 million; checkable deposits at depository institutions = $35 million; large-denomination time deposits = $50 million; institutional money market mutual funds = $65 million; and small-denomination time deposits = $45 million. Using Federal Reserve definitions, determine the dollar sizes of the
a.M1 money supply
Traveler’s check $1 million
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Other checkable deposits 35
M1 Money supply $? million
b. M2 money supply
M1 Money supply $91 million
Retail money market mutual funds 60
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M2 Money supply $? million
c. M3 money supply $? Million
Repurchase agreements and Eurodollars 15
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M3 money supply ? million
a. M1 money supply: To determine the dollar size of the M1 money supply, we need to consider the following components: demand deposits, travelers' checks, and other checkable deposits.
Demand deposits = $25 million
Travelers' checks = $1 million
Other checkable deposits = $35 million
M1 Money supply = $25 million + $1 million + $35 million = $61 million
b. M2 money supply: To determine the dollar size of the M2 money supply, we need to consider the M1 money supply and add retail money market mutual funds, savings accounts at depository institutions, and small-denomination time deposits.
M1 Money supply = $61 million
Retail money market mutual funds = $60 million
Savings accounts at depository institutions = $40 million
Small-denomination time deposits = $45 million
M2 Money supply = $61 million + $60 million + $40 million + $45 million = $206 million
c. M3 money supply: To determine the dollar size of the M3 money supply, we need to consider the M2 money supply and add institutional money market mutual funds and large-denomination time deposits.
M2 Money supply = $206 million
Institutional money market mutual funds = $65 million
Large-denomination time deposits = $50 million
M3 Money supply = $206 million + $65 million + $50 million = $321 million
a. To determine the dollar size of M1 money supply, we need to add the following components:
- Travelers' checks: $1 million
- Checkable deposits at depository institutions: $35 million
Therefore, the dollar size of M1 money supply is $36 million.
b. To determine the dollar size of M2 money supply, we need to add the following components to M1 money supply:
- Retail money market mutual funds: $60 million
- Savings accounts at depository institutions: $40 million
- Small-denomination time deposits: $45 million
Therefore, the dollar size of M2 money supply is $181 million.
c. To determine the dollar size of M3 money supply, we need to add the following components to M2 money supply:
- Repurchase agreements and Eurodollars: $15 million
- Institutional money market mutual funds: $65 million
- Large-denomination time deposits: $50 million
Therefore, the dollar size of M3 money supply is $311 million.
To determine the dollar sizes of the M1, M2, and M3 money supplies, we need to understand the components of each money supply definition and calculate the total values.
a. M1 Money Supply:
The M1 money supply includes the most liquid forms of money that are readily accessible for transactions. M1 consists of:
1. Currency (coin and paper money) held by the public
2. Demand deposits (checkable deposits) at depository institutions (such as commercial banks)
3. Travelers' checks
Given information:
- Travelers' checks = $1 million
- Demand deposits = $35 million
To calculate the dollar size of the M1 money supply, simply add the values of travelers' checks and demand deposits:
M1 Money supply = Travelers' checks + Demand deposits = $1 million + $35 million = $36 million
Therefore, the dollar size of the M1 money supply is $36 million.
b. M2 Money Supply:
The M2 money supply includes all components of M1 plus additional less liquid forms of money that are still considered readily accessible. M2 consists of:
1. M1 (Currency, demand deposits, and travelers' checks)
2. Retail money market mutual funds (MMMFs)
3. Savings accounts at depository institutions
4. Small-denomination time deposits (CDs) at depository institutions (less than $100,000)
Given information:
- M1 Money supply = $36 million
- Retail money market mutual funds = $60 million
To calculate the dollar size of the M2 money supply, add the values of M1, retail MMMFs, savings accounts, and small-denomination time deposits:
M2 Money supply = M1 Money supply + Retail MMMFs + Savings accounts + Small-denomination time deposits
= $36 million + $60 million + $40 million + $45 million
= $181 million
Therefore, the dollar size of the M2 money supply is $181 million.
c. M3 Money Supply:
The M3 money supply includes all components of M2 plus longer-term, less liquid forms of money held by institutional investors. M3 consists of:
1. M2 (Currency, demand deposits, travelers' checks, retail MMMFs, savings accounts, and small-denomination time deposits)
2. Large-denomination time deposits (CDs) at depository institutions (greater than $100,000)
3. Institutional money market mutual funds (MMMFs)
4. Repurchase agreements and Eurodollars
Given information:
- M2 Money supply = $181 million
- Repurchase agreements and Eurodollars = $15 million
To calculate the dollar size of the M3 money supply, add the values of M2, large-denomination time deposits, institutional MMMFs, and repurchase agreements and Eurodollars:
M3 Money supply = M2 Money supply + Large-denomination time deposits + Institutional MMMFs + Repurchase agreements and Eurodollars
= $181 million + $50 million + $65 million + $15 million
= $311 million
Therefore, the dollar size of the M3 money supply is $311 million.