Question

Go to the St. Louis Federal Reserve FRED database, and find data on currency (CURRSL), traveler’s checks (TVCKSSL), demand deposits (DEMDEPSL), and other checkable deposits (OCDSL). Calculate the M1 money supply, and calculate the percentage change in M1 and in each of the four components of M1 from the most recent month of data available to the same time one year prior. Which component has the highest growth rate? The lowest growth rate? Repeat the calculations using the data from January 2000 to the most recent month of data available, and compare your results.

Short answer

For Dec 2018, M1 money supply is $3,760.9. For Dec 2017, M1 money supply is $3,610.6.

	growth between 2017-2018	growth between 2000-2018
Currency	6.56%	209.6%
Traveler's check	-10.52%	-80%
Demand deposit	1.02%	334.42%
Checkable deposit	5.94%	159.61%
M1	4.16%	208%

Currency has the highest growth rate in both cases, while traveler's check has the lowest growth rate.

Step-by-step solution

Step 1. Introduction 

Money supply refers to the volume of money available in the economy at a point. Different measures of money supply are M1, M2, M3, and M4. M1 measure includes currency in circulation, traveler's checks, and demand deposits.

Step 2. Explanation 

Currency in Dec 2018 is 1,625.5.

Traveler's checks in Dec 2018 is 1.7

Demand deposits in Dec 2018 is 1,504.4

Checkable deposits in Dec 2018 is 629.3.

So, M1 for dec 2018 can be obtained as

$\$\left(1,625.5+1.7+1,504.4+629.3\right)billions=\$3,760.9billions$

Currency in Dec 2017 is 1,525.4.

Traveler's checks in Dec 2017 is 1.9.

Demand deposits in Dec 2017 is 1,489.2.

Checkable deposits in Dec 2017 is 594.0.

So, M1 for Dec 2017 can be obtained as

localid="1649740986868" $\$(1,525.4+1.9+1,489.2+594)billions=\$3,610.6billions$

The percentage growth rate of M1 can be obtained as

localid="1649740992191" $\frac{\$(3,760.9-3,610.6)billions}{\$3,610.6billions}\times 100=4.16\%$

Similarly, growth rates for other components can be obtained

localid="1649741001878" $$\begin{gathered} Currency-\frac{1,625.5-1,525.4}{1,525.4}\times 100=6.56\% \\ Traveler\text{'}scheck-\frac{1.7-1.9}{1.9}\times 100=-10.52 \\ Demanddeposits-\frac{1,504.4-1,489.2}{1,489.2}\times 100=1.02\% \\ Checkabledeposits-\frac{629.3-594}{594}\times 100=5.94\% \end{gathered}$$

So, the currency has the highest growth rate while traveler's check has the lowest growth rate.

Step 3. Comparison with Jan 2000

Currency in Dec 2018 is 1,625.5.

Traveler's checks in Dec 2018 is 1.7

Demand deposits in Dec 2018 is 1,504.4

Checkable deposits in Dec 2018 is 629.3.

So, M1 for dec 2018 can be obtained as

$\$(1,625.5+1.7+1,504.4+629.3)billions=\$3,760.9billions$

Currency in Jan 2000 is 524.9.

Traveler's checks in Jan 2000 is 8.5

Demand deposits in Jan 2000 is 346.3

Checkable deposits in Jan 2000 is 242.4

So, M1 for Jan 2000 can be obtained as,

$\$(524.9+8.5+346.3+242.4)=\$1,122.1billions$

Percentage growth can be obtained as,

$\frac{\$(3,760.9-1,221.1)billions}{\$1,221.1billions}\times 100=208\%$

Similarly, the growth rate for other components can be obtained

$$\begin{gathered} Currency-\frac{1,625.5-524.9}{524.9}\times 100=209.6\%\% \\ Traveler\text{'}scheck-\frac{1.7-8.5}{8.5}\times 100=-80\% \\ Demanddeposits-\frac{1,504.4-346.3}{346.3}\times 100=334.42\%\% \\ Checkabledeposits-\frac{629.3-242.4}{242.4}\times 100=159.61\% \end{gathered}$$

When observing the growth rate from January 2000, it is evident that currently has the highest growth rate while traveler's check has the lowest growth rate.