Which of the following does not explain what backs the money supply in the United States? Explain your answer. B. the deposits of banks and thrifts on which checks can be written. We have step-by-step solutions for your textbooks written by Bartleby experts! The M2 money supply is about _____ times larger than the M1 money supply. However, M2 is important to understand because it can often serve as a legitimate way to invest, increase wealth, and even pay off loans, bills, and taxes. D. highly illiquid. The purchasing power of money and the price level vary: If the price index rises from 100 to 120, the purchasing power values of the dollar: If the price index rises from 200 to 250, the purchasing power values of the dollar: During period of rapid inflation, money may cease t work as a medium of exchange: D.because the businesses will not want to accept it in transaction. The near-money components of M2 are less liquid than the M1 components of M2. Credit cards areA. It does not contain “near money” or “near, near money” as M2 and M3 do. These means of measuring a money supply are typically classified as “M”s and fall along a spectrum from narrow to broad monetary aggregates. Which role of the Federal Reserve was expanded directly as a result of the PDCF and TSLF? The US dollar’s M3 measurement includes assets that are less liquid than other components of the money supply (mainly M1 and M2) that are referred to respectively as ‘near money’ and ‘near, near money… Class Exercise 1 Suppose you deposit $500 cash in your checking account at Bank of America. 5. In the United States, the Federal Reserve's dual mandate is to balance unemployment and inflation. M3 includes M2 plus longer-term time deposits and money market funds with more than 24-hour maturity. Meaning, it is easily converted to usable currency. Increased Money Supply During the Pandemic, Monetary Aggregates Describes the Types of Currency in Circulation. In 2020, the M2 supply went from $15.51 trillion in February right before the COVID-19 pandemic really took hold, to $18.45 trillion in August, well into the pandemic, a jump of nearly 19 percent. To say that the Federal Reserve Banks are quasi-public banks means that: A. they are privately owned, but managed in the public interest. M2 provides important insight into the direction, extremity, and efficacy of central bank policy. The European Central Bank considers all monetary aggregates from M2 upwards to be part of broad money. Every measurement has it own definition with different components varying from most liquid to most rigid form. Which of the following programs provides loans of U.S. securities to primary dealers for one-month terms, in an effort to enhance liquidity in U.S. securities markets? M2 is never really used as a means of payment, that is all done in M1. M2: A measure of the money supply that includes M1 as well as near money. Currency held in the vault of the First National Bank is: D. is not counted as part of the money supply. Answer and Explanation: Become a Study.com member to unlock this answer! M2 is a broader money classification than M1 because it includes assets that are highly liquid but are not cash. Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as: Firms whose central business is providing individual account shares of collections of stocks, bonds, or both are known as: Which of these pairs of financial institutions are most alike in terms of their main lines of business? M1 and M2 are closely related, and economists like to include the more broadly defined definition for M2 when discussing the money supply, because modern economies often involve transfers between different account types. The near-money components of M2 are: less liquid than the M1 components of M2. The group that sets the Federal Reserve System policy on buying and selling government securities (bill, notes, and bonds) is the: Approximately how many commercial banks are now operating in the United States? Savings deposits (including money market deposit accounts) at banks or thrifts 5. 4. Broad money is a measure of a country’s money supply.The term, which usually refers to M3, includes more than simply banknotes and coins.In other words, it means more than ‘narrow money.’ It is the most inclusive definition of the money supply. The notation M2 is called ‘Near Money’ or broad money as per local practice. What is the largest component? How does it differ from a regular savings account? This includes savings deposits, money market mutual funds and other time deposits. A. (What is a demand deposit?) The increase reflected the tough economic period and the Federal Reserve's actions to cut interest rates to near historic lows and increase the money supply overall. The liquidity of these assets makes them the closest substitutes for M1. The M2 money supply is … The near-money components of M2 are: equally liquid as the M1 components of M2. What are the components of the M1 money supply? Due to the complexity of the concept of “money,” as well as the size and level of detail of an economy, there are multiple ways of measuring a money supply. These assets are less liquid than M1 and not as suitable as exchange mediums, but they can be quickly converted into cash or checking deposits. highly illiquid. The near-money components of M2 are less liquid than the M1 components of M2. It is back by gold. How does it differ from a regular savings account? M2 is a calculation of the money supply that includes all elements of M1 as well as "near money." B. more liquid than the M1 components of M2. Money supply data is recorded and published, usually by the government or the central bank of the country. Just look at the shaded areas in the chart. 7. 39. With M2, not only does it include \"near money,\" but it also includes cash and checking deposits. less liquid than the M1 components of M2.D. M2 is a key economic indicator used to forecast inflation. The European Central Bank considers all monetary aggregates from M2 upwards to be part of broad money. To say money is socially defined means that: B. whatever performs the functions of money extremely well is considered to be money. C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. If you are estimating your total expenses for school next semester, you are using money primarily as: If you place a part of your summer earning in a savings account, you are using money primarily as a: If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A $70 price tag on a sweater in a department store window is an example of money functioning as a: Stock market price quotations best exemplify money serving as a(n): Purchasing common stock by writing a check best exemplifies money serving as a(n): When economists say that money serves as a medium of exchange, they mean that it is: When economist say that money serves as a unit of account, they mean that it is: C. a monetary unit for measuring and comparing the relative values of goods. These additional assets include savings accounts, money market deposit accounts, small time deposits (less than $100,000) and retail money market mutual funds. One of the ways it does this is by manipulating M2 money supply. B. the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending. Which of the following is the basic economic policy function of the Federal Reserve Banks? Near money is signposted in M2. Data on large time deposits, institutional money market funds, and other large liquid assets are published on a quarterly basis and are included in the M3 money supply measurement. While M1/M0 are used to describe narrow money, M2/M3/M4 qualify as broad money and M4 represents the largest concept of the money supply. equally liquid as the M1 components of M2. Inflation and interest rates have major ramifications for the general economy, as these heavily influence employment, consumer spending, business investment, currency strength, and trade balances. D. insured holders of loan-backed securities in case they underlying loans were not repaid. more liquid than the M1 components of M2.C. What are the components of M1? Small-denominated time deposits, by definition: C. less liquid than the M1 components of M2. Which of the components of M1 is legal tender? Broad … M2 includes all of M1 (and all of M0) plus savings deposits and certificates of deposit, which are less liquid than checking accounts. 1. D. highly illiquid. The Federal Reserve System was created in: In the U.S. economy the money supply is controlled by the: As it relates to the Federal Reserve activities, the acronym FOMC describes the: The Federal Open Market Committee (FOMC) is made up of: D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis. M2: A measure of the money supply that includes M1 as well as near money. 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