Scenario 3: The Monetary System and Policy  Below represents the monetary system in the US:  Small time deposits  $1,100 billion  Demand deposits and other checkable deposits  $800 billion  Savings deposits  $1,350 billion  Money market mutual funds  $900 billion  Traveler's checks  $30 billion  Large time deposits  $750 billion  Currency  $150 billion  Miscellaneous categories in M2  $40 billion    4

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Scenario 3: The Monetary System and Policy 

Below represents the monetary system in the US: 

Small time deposits 

$1,100 billion 

Demand deposits and other checkable deposits 

$800 billion 

Savings deposits 

$1,350 billion 

Money market mutual funds 

$900 billion 

Traveler's checks 

$30 billion 

Large time deposits 

$750 billion 

Currency 

$150 billion 

Miscellaneous categories in M2 

$40 billion 

 

4. From the value of M2 you found in question 1, assume that the price level is 100 and real output is valued at $218.5 billion. What is the current velocity of money?  

I believe I answered this correctly. If I calculated answer 1. wrong I will update my answer.   

Velocity = (P x Y) /M  

100 x $218.5 / $5,120 = 4.26

 

5.Continuing from the previous question. The Federal Reserve is currently using the M2 money supply as a guide to help them in their policy goals. The Federal Reserve wants to promote a healthy economy. The Federal Reserve, in an attempt to improve the economy, injects $500 billion into the economy over the course of the year. During that same year, real output grew to $223.83 billion. Based on this, what is the new rate of inflation?