1. In June of 2013, currency held by individuals and businesses was $1,124 billion; traveler's checks were $4 billion; checkable deposits owned by individuals and businesses were $1,402 billion; savings deposits were $6,884 billion; time deposits were $583 billion; and money markets funds and other deposits were $647 billion. Calculate M1 and M2 in June of 2013.

2. China's central bank raised its reserve ratio requirement by one percentage point to 17.5 percent by June 25. China's action was an attempt to decrease lending growth.

• People's Daily Online, June 11, 2008

a. Compare the required reserve ratio in China and in the United States.

b. Explain how raising the required reserve ratio changes the interest rate in the short run and draw a graph to illustrate the change.