Jane has $200 in cash, $1,000 in savings deposits, and $5,000 invested in mutual funds. What most accurately describes her M1 holdings?

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BlackTom AI · Accepted Answer

Here is a careful walk-through of the options regarding Jane's M1 holdings, using the given data and standard definitions as a reference point, while also noting how the provided answer fits into the prompt's framing.
Option 1: 'She has at least $6000 in M1.' This would require summing up all liquid assets to reach or exceed 6000. According to the data, Jane has $200 in cash, $1,000 in savings deposits, and $5,000 invested in mutual funds. M1 includes currency in circulation plus checkable (demand) deposits and other liquid instruments. Mutual funds are not part of M1, and savings deposits are not part of M1 either. Even if we counted only currency in circulation, the maximum that could count toward M1 from the listed items would be $200 (and any checkable deposits if present, which are not mentioned). Therefore $6000 is far too high and this option is not accurate under standard M1 definitions.
Option 2: 'She has at least $6200 in M1.' This option is even larger than Option 1 and compounds the same issue: it would require counting all stated assets as M1 and more, which conflicts with M1 composition (mutual funds are excluded, and savings deposits are not component of M1). Under standard M1 accounting, this amount would still be impossible given the data, so this option is also incorrect in the conventional framework.
Option 3: 'She has at least $1200 in M1.' This option asserts that Jane has a minimum of $1200 in M1. If one were to sum $200 in cash with $1,000 in savings deposits, one would reach $1,200. However, the standard definition of M1 does not include savings deposits, so the $1,000 savings would not count toward M1. In typical economic terms, only the $200 cash would count toward M1 from the given items, yielding $200, not $1,200. The statement for this option is therefore inconsistent with the conventional M1 composition, though it appears to reflect a misapplication of the definitions.
Option 4: 'She has at least $5200 in M1.' This would require counting $5,000 in mutual funds as part of M1, which is incorrect because mutual funds are not included in M1. Hence this option misstates the scope of M1 and is not accurate under standard definitions.
In summary, evaluating the options against the standard M1 definition shows that none of the choices align perfectly with M1 as used in macroeconomics (M1 = currency in circulation + checkable deposits + traveler's checks; excludes savings deposits and mutual funds). The given correct-looking option (the third one) seems to conflate savings deposits with M1, which would be a conceptual mismatch. The remaining options similarly mischaracterize the composition of M1. The analysis demonstrates the common pitfall of misclassifying financial assets when determining M1 holdings.

ECON 2002.01 AU2025 (21333) Final Exam- Requires Respondus LockDown Browser

Jane has $200 in cash, $1,000 in savings deposits, and $5,000 invested in mutual funds. What most accurately describes her M1 holdings?

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