Chapter 3: Q.1 (page 110)
Why is simply counting currency an inadequate measure of money?
Counting currency is inadequate measure because, it does not cover entire money supply of the economy.
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Was money a better store of value in the United States in the 1950s than in the 1970s? Why or why not? In which period would you have been more willing to hold money?
19. The table below shows hypothetical values, in billions of dollars, of different forms of money.
a. Use the table to calculate the M1 and M2 money supplies for each year, as well as the growth rates of the M1 and M2 money supplies from the previous year.
b. Why are the growth rates of M1 and M2 so different? Explain.
| 2019 | 2020 | 2021 | 2022 | |
| Currency | 880 | 895 | 900 | 906 |
| Money market mutual fund shares | 680 | 685 | 683 | 692 |
| Saving account deposits | 5,500 | 5,780 | 5,968 | 6,105 |
| Money market deposit accounts | 1,214 | 1,245 | 1,274 | 1,329 |
| Demand and checkable deposits | 1,000 | 972 | 980 | 993 |
| Small denomination time deposits | 840 | 871 | 1,133 | 1,576 |
| Traveler's check | 5 | 5 | 4 | 3 |
| 3-month treasury bills | 1,986 | 2,374 | 2,436 | 2,502 |
It is not unusual to find a business that displays a sign saying “no personal checks, please.” On the basis of this observation, comment on the relative degree of liquidity of a checking account versus currency
Explain the concept of liquidity. Rank the following assets from most liquid to least liquid:
a. Land
b. The inventory of a merchandiser
c. Cash in hand
d. A savings account at a local bank
e. A one-year bond
f. Ordinary shares
In April 2009, year-over-year the growth rate of M1 fell to 6.1%, while the growth rate of M2 rose to 10.3%. In September 2013, the growth rate of the M1 money supply was 6.5%, while the growth rate of the M2 money supply was about 8.3%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2?
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