Sarah has $200,000 in her checking account. Sarah's bank puts $100,000 of it into reserves, and lends the remaining $100,000 to John. John uses the funds to buy a house from Peter, who takes the $100,000 he earned in the sale and puts it in his savings account. John's bank puts $98,000 of these funds into reserves, and uses the remaining $2,000 to make a new loan to Olga. Olga takes this loan in cash since she is about to go on a road trip. Based on the information provided, what is the money supply (M2) in this economy

Respuesta :

Answer:

The money supply (M2) in this economy is:

= $302,000.

Explanation:

a) M2 includes cash, checking deposits, and convertible near money (or savings and time deposits, certificates of deposit, and money market funds). ┬аM2 is always higher than M1, which is made up of cash and checking deposits only.

b) Data and Calculations:

M2 in this economy equals to:

Sarah's deposit of $200,000

Peter's deposit of $100,000

Olga's cash of $2,000

Total M2 = $302,000

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