Part I: The following amounts of different forms of (what could be considered) money are circulating in the "slightly more complicated" circular flow (i.e., the economy). Use the numbers to calculate M1 and M2, show your work by listing what is included in each.

Checking Deposits = $1,000; Coins = $10; Federal Reserve Notes = $900

Foreign Currency = $80; Money Market Funds = $1,000;

Mortgage Securities = $2,000; Savings Deposits = $19,000;

Time Deposits (large) = $200; Time Deposits (small) = $500;

Traveler's Checks = $40; Treasury Securities = $6,000

**M1 and M2 have been answered**

M1 = Checking_Deposits + Coins + Federal_Reserve_Notes + Travelers_Checks

= 1950$

M2 = M1 + Savings_Deposits + Money_Market_Funds + Time_Deposits_small + Time_Deposits_large

= 22650$

Part II: Given the following formula for the quantity supplied of money, by how much would the money supply grow if the Fed lowered the interest rate (P for price in the formula) by 0.25%?

Q_s = $100,000,000 - ($4,000,000 * P) P =-0.25 Q_s=

Part III: If the Federal Reserve increased the money supply by $1 million via the purchase of treasury securities in "Open Market Operations." For each of the following required reserve ratios (r) calculate the simple money multiplier (SMM)and show by how much the money supply (MS) could potentially grow after the money worked its way through the banking system. Show your work, or specify the formulas.

r = 0.0833 SMM = MS =

r = 0.10 SMM = MS =

r = 0.1429 SMM = MS =

Now cite one reason why the growth in the money supply would likely be smaller, perhaps much smaller, than the above results would imply