With explanations and work please!
Suppose the Federal Reserve buys 100 of mortgage-backed securities in the open market. What effect will this open market operation have on demand deposits and M1? Show all work.
Assume the required reserve ratio is 10% and the currency drain is 40%. Ignore all other complications. Thanks!
M1:
What is 'M1'
M1 is a metric for the money supply of a country and includes physical money â both paper and coin â as well as checking accounts, demand deposits and negotiable order of withdrawal (NOW) accounts. The most liquid portions of the money supply are measured by M1 because it contains currency and assets that can be converted to cash quickly. "Near money" and "near, near money," which fall under M2 and M3, cannot be converted to currency as quickly.
M1= Currency + Demand Deposits
With explanations and work please!
Suppose the Federal Reserve buys 100 of mortgage-backed securities in the open market. What effect will this open market operation have on demand deposits and M1? Show all work.
Assume the required reserve ratio is 10% and the currency drain is 40%. Ignore all other complications. Thanks!
M1:
What is 'M1'
M1 is a metric for the money supply of a country and includes physical money â both paper and coin â as well as checking accounts, demand deposits and negotiable order of withdrawal (NOW) accounts. The most liquid portions of the money supply are measured by M1 because it contains currency and assets that can be converted to cash quickly. "Near money" and "near, near money," which fall under M2 and M3, cannot be converted to currency as quickly.
M1= Currency + Demand Deposits
