Table 29-2

Question

The information in the following table pertains to the hypothetical economy of Florencial.
Type of Money

Amount

(Billions of dollars)
Large time deposits 120
Small time deposits 80
Demand deposits 300
Other checkable deposits 50
Savings deposits 65
Traveler's checks 5
Money market mutual funds 200
Currency 150
Credit card balances 300
Miscellaneous categories of M2 30

Refer to Table 29-2. What is the M2 money supply in Florencial?
a. $1,000 billion
b. $880 billion
c. $1,300 billion
d. $580 billion

Answer 1

To calculate the M2 money supply in the hypothetical economy of Florencial, you need to sum the components that make up M2. M2 includes the following components:

1. Currency
2. Demand deposits
3. Other checkable deposits
4. Savings deposits
5. Small time deposits
6. Large time deposits
7. Money market mutual funds
8. Traveler's checks
9. Miscellaneous categories of M2

Now, let's add up the amounts given in the table:

• Currency: $150 billion
• Demand deposits: $300 billion
• Other checkable deposits: $50 billion
• Savings deposits: $65 billion
• Small time deposits: $80 billion
• Large time deposits: $120 billion
• Money market mutual funds: $200 billion
• Traveler's checks: $5 billion
• Miscellaneous categories of M2: $30 billion

Now, add these amounts together:

\[ \text{M2} = 150 + 300 + 50 + 65 + 80 + 120 + 200 + 5 + 30 \]

Calculating that gives:

\[ \text{M2} = 150 + 300 + 50 + 65 + 80 + 120 + 200 + 5 + 30 = 1,000 \text{ billion dollars} \]

Therefore, the M2 money supply in Florencial is:

a. $1,000 billion