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1. Use the figures in the table below to answer the following questions. | Billions|
Small time depositsMoney-market mutual funds held by businessesSavings deposits, including money-market deposit accountsMoney-market mutual funds held by individualsCheckable depositsCurrency| $125013001620905836325|

(a) What is the value of M1?
836 + 325 = $1161 billion
(b) What is the value of M2?
1161 + 1620 + 1250 + 905 = $4936 billion

2. Assume that the following asset values (in millions of dollars) exist in Ironmania: Federal Reserve Notes or Bills in circulation = $700; Money market mutual funds (MMMFs) held by individuals = $400; Corporate bonds = $300; Iron ore deposits = $50; Currency in commercial banks = $100; Savings deposits, including money market deposit accounts (MMDAs) = $140; Checkable deposits = $1500 ; Small-denominated (less than $100,000) time deposits = $100; Coins in circulation = $40.

a. What is M1 in Ironmania?
b. What is M2 in Ironmania?

3. Assume that Jimmy Cash has $2000 in his checking account at Folsom Bank and uses his checking account card to withdraw $200 of cash from the bank’s ATM machine. By what dollar amount did the i) M1 and ii) M2 change as a result of this single, isolated transaction?

4. Suppose the price level in year 2009 is 100 and $100 buys 100 notebooks that year. If the price level rises to 125 in year 2010, what is the new value or purchasing power of the dollar? If, instead, the price level falls to 50, what is the value or purchasing power of the dollar? What relationship do you find between the U.S. price level and the value of the dollar?

The new value of the dollar would 2.5 that year of the increase. If the amount is decrease by 50 the change will also be 2.5. The relationship between the price level and the value of the dollar is no matter what the percentage of the dollar the value of the price will always equal the...
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