Anonymous

# Econ Question about M1 M2 M3

Assets (million) Liabilities (million)

Reserve \$250 Deposits \$1,000

Loans \$750

Refer to the above table. Suppose Mr Lee withdraws \$1 million from a deposit-taking company, then seposits \$500,000 into a a licensed

bank as a time deposit and remits the remaining \$500,000 to his

daughter in US. What are the changes in the M1, M2 and M3

definitions?

Rating
• S™
Lv 5

definitions

M1 = legal tender held by publics

+ demand deposit

M2 = M1

+ saving and time depositswith licensed banks

+ NCDs issued by licensed banks held by non-authorised

insititutions

M3 = M2

+ deposits with restricted licensed banks and

deposit - taking companies

+ NCDs issued by restricted licensed banks and

deposits-taking companies held by non-authorised insititutions

M3 will decresed ↓by\$500,000 immediately since mr lee remited the remaining \$500,000 to his daughter in US.

M2 will incresed ↑by\$500,000 because mr lee deposits \$500,000 into a licensed bank as a time deposit which is included in M2.

M1 will not be affected.

2009-04-23 10:44:24 補充：

actually it has nothing to do with the banking system shown above

just refers to the question , you are required to calculate the money supply of M1 ,M2 & M3 respectively.

First , I don't know the following answer is excally correct or not.

As , if you withdraw money from bank, there would be a deposit

contraction .

But u don't have the legal reserve ratio of the bank..........

So, assume the bank has no excess reserve. XD

Required reserve ratio is 25%

After the withdraw , the bank has to call back loans (0.75million)

Max. decrease in deposit : 1+ 0.75(1/0.25)=4million

So, M3 =(-4+0.5)=-3.5million

M2= +0.5million

M1 no change

條問題怪怪的 ....

Source(s): me