The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault
What is the amount of these assets and liabilities that is in M1?
The only deposit that is in M1 is the checking deposits, so the amount that is in M1 is checking deposits of $400,000.
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Suppose the president is successful in passing a $10 billion tax increase. Assume that taxes are fixed, the economy is closed, and the marginal propensity to consume is 0.8. What happens to equilibrium GDP?
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