Question

Go to http://www.federalreserve.gov/releases/h6/hist/ and find the historical report of M1 and M2 by clicking on the “Data Download Program.” Compute the growth rate of each aggregate over each of the past three years. Does it appear that the Fed has been increasing or decreasing the rate of growth of the money supply? Is this consistent with your understanding of the needs of the economy? Why?

Short answer

The money supply is essential to improve in the recent years to expand the economy and the increase in the money supply by FED in recent three years is as consistent with the requirement of the economy

Step-by-step solution

Concept Introduction

$M_1$is the money supply that maintains currency, demand deposits, other liquid deposits—which contains savings deposits. $M_1$contains the most liquid portions of the money supply because it has currency and assets that either is or can be quickly transformed to cash

Money available in the U.S. is measured using the $M_2$standard, which includes $M_1$plus savings accounts, money market accounts, and small-time deposits under 100,000. It also includes money market securities and retail mutual funds.

Explanation

By looking at the data of the three years this is observable from the data that the money supply growth $M1andM2$is continually growing year by year and now at recent it is on the almost on maximum. The money supply is just required to grow the country. Since the Covid $19$ had brought the demand to strengthen the economy recover the economy back. Hence the money supply recently was required to increase significantly. This was only the excuse post Covid the harmed economy due to lockdown recovered in fast manner Fed has been rising or diminishing the rate of growth of the money supply just to growth economy which had the adverse effect of Covid $19$ in the recent. Hence the need was a necessity. The performance was as consistent as the economy suggest since the recession arose in the current years due to the consequential fall in demand and production during Covid and hence investment was essential to boot the economy and the interest rate more affordable were important to increase the demand in the economy which would result in the employment and economic growth.

Final Answer

The money supply is essential to improve in the recent years to expand the economy and the increase in the money supply by FED in recent three years is as consistent with the requirement of the economy