Question

1. Ted Mosby receives $125,000 after his certificate deposit (time deposit) with Goliath National Bank (GNB) matures. He also receives another $400,000 after selling the shares of Prime Reserve fund, a money market mutual fund. At the same time, he also receives $100,000 after selling his Microsoft shares in the stock market. He uses these receipts in the following way: he uses $75,000 to buy treasury bills. He invests $100,000 in google shares. He deposits $30,000 and $50,000 to his checking and saving accounts, respectively. He then buys two certificate deposits (time deposits) worth of $75,000 and $125,000, respectively. He deposits $120,000 in a money market deposit account with GNB. Finally, he keeps the rest of the amount in the locker of his home. How will these transactions affect M1 and M2?

how does it affect m1& m2?

Answer 1

IF ANY QUERY, FEEL FREE TO ASK Solution M1 stands for liquid money such as Cash, travelers checks and demand deposit, whereas M2 are less liquid which include M1 and time deposit, money market fund and certificate of deposit. 1 On basic of above discussion, following shall be Impact on M1 and M2 for Ted Mosby:- Receives $125000 - Time Deposit Mature - Affect M2 Receive $400000 - Selling Shares of Prime reserve fund, a money market mutual fund - Affect M2 Receive $100000 - Selling Shares of Microsoft - Does not Affect M1 and M2 Buy $75000 - Treasury Bills - Affects M2 Invest $ 100000 - Google Shares - Does not Affect M1 and M2 Deposit $ 30000 - checking account - Affects M1 and M2 Deposit $ 50000 - saving account- Affects M2 Buy 2 Time Deposit of $75000 and $120000 - Affect M2 Deposit $ 120000 - money market deposit account - Affect M2 Keep Rest amount in Locker - Affect M1 and M2 2 On basic of above discussion, following shall be Impact on M1 and M2 for Ted Mosby:- Receives $50000 and $110000 - Time Deposit Mature - Affect M2 Receive $200000 - Selling Shares of Prime reserve fund, a money market mutual fund - Affect M2 Receive $120000 - Selling Shares of Microsoft - Does not Affect M1 and M2 Redeem $100000 - Treasury Security - Affects M2 Buy $75000 - Treasury Bills - Affects M2 Invest $ 100000 - Google Shares - Does not Affect M1 and M2 Buy $ 5000 - Travelers Check - Affects M1 and M2 Deposit $ 30000 - checking account - Affects M1 and M2 Deposit $ 50000 - saving account- Affects M2 Buy 2 Time Deposit of $75000 and $125000 - Affect M2 Deposit $ 120000 - money market deposit account - Affect M2 Keep Rest amount in Locker - Affect M1 and M2