When a commercial bank lends 1000 to a customer A) M1 and M2 ...

[jake]

When a commercial bank lends 1000 to a customer
 
  A) M1 and M2 decline by 1000.
  B) M1 and M2 rise by 1000.
  C) M1 rises but M2 does not change.
  D) there is no change in M1 or M2 until the loan proceeds are spent.

Question 2

Differentiate between principal and time value of money. John invests 100 in a bank for a year. At the end of the year he receives 125. What is the principal and time value of money in this case?
 
  What will be an ideal response?

[cpetit11]

Answer to Question 1

B

Answer to Question 2

The amount of the original investment is referred to as principal, while time value of money is the interest or payment received for temporarily giving up the use of money that has been invested.
In this case 100 is the principal, while (125 - 100 ) or 25 is the time value of money.

[jake]

Correct answers!

[cpetit11]

Great! Please up vote