Suppose that in a certain month, the year-over-year growth rate of M1 in the United States fell to 5.6%, while the growth rate of M2 rose to 10.2%. A few years later, the year-over-year growth rate of the M1 money supply was 6.3%, while the growth rate of the M2 money supply was about 8.5%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2? (Select all that apply.) ☐ A. The United States economy must be experiencing hyperinflation. ☐ B. In this period, different courses of monetary policy action might be deemed appropriate depending on what measure of money is used. ☐ C. Americans must be holding more currency outside of banks. ☐ D. The growth rates of M1 and M2 moved in opposite directions. ☐ E. The Federal Reserve's methods of measuring money supply growth are most likely flawed in some way, since it is nearly impossible for both of these changes to happen at the same time.

Suppose that in a certain month, the year-over-year growth rate of M1 in the United States fell to 5.6%, while the growth rate of M2 rose to 10.2%. A few years later, the year-over-year growth rate of the M1 money supply was 6.3%, while the growth rate of the M2 money supply was about 8.5%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2? (Select all that apply.) ☐ A. The United States economy must be experiencing hyperinflation. ☐ B. In this period, different courses of monetary policy action might be deemed appropriate depending on what measure of money is used. ☐ C. Americans must be holding more currency outside of banks. ☐ D. The growth rates of M1 and M2 moved in opposite directions. ☐ E. The Federal Reserve's methods of measuring money supply growth are most likely flawed in some way, since it is nearly impossible for both of these changes to happen at the same time.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

What is the defining difference among our various measures of money supply, such as M1 and M2? The defining difference is origin, whether the money is issued by the Federal Reserve Bank or the Federal Government The defining difference is liquidity, how quickly the instrument could be turned to cash and expended The defining difference is regulation, how much control the Federal Reserve Bank has over the relative amounts of M1 or M2 in circulation The defining difference is function, whether the money is used to meet transactions demand or asset demand
You are given the following balance sheet of the Summer Bank (21) Balance sheet of the Winter bank Assets Liabilities Cash $ 8,000 Deposited with the Fed $ 5,000 Loans $ 117,000 Deposits $ 80,000 Capital $ 50,000 Total $ 130,000 Total $ 130,000 The required reserve ratio (RRR) on all deposits is 5% What, if any, are this bank's excess reserves? How much new amount of loan will this bank be able to create because of the excess reserves? How much new amount of loan the entire banking system be able to create because of the excess reserves? What would be the excess reserves of this bank after the RRR is changed to 4%? How much new amount of loan will this bank be able to create with the RRR of 4%? How much new amount of loan the entire banking system be able to create because of the excess reserves? What happened to the money supply after the…
One effect of the September 11, 2001, terrorist attacks was to temporarily prevent banks from accessing reserves they needed to meet the demands of their customers. (This occurred because the attacks destroyed many records as well as the computers required to access backup records, and it took affected banks several weeks to become fully operational.) In response, the Fed made many billions of dollars of reserves available to banks, gradually withdrawing the new reserves from the banking system as that system returned to normal. Suppose the Fed had not injected reserves in this way. What would likely have happened to interest rates as a result? What would have been the likely impact on the stock market and on spending by consumers and businesses? Would the unemployment rate have gone up or down? Explain your reasoning in each case.
Compare the use of open market operations, loans to financial institutions, and changes in reserve requirements to control the money supply on the basis of the following criteria: flexibility, reversibility, effectiveness, and speed of implementation.
Using the supply and demand analysis of the market for reserves, determine what happens to the federal funds rate, borrowed reserves, and non-borrowed reserves, holding everything else constant, if: The economy is surprisingly strong, leading to an increase in the amount of checkable deposits. The fed reduces reserve requirements and the federal funds rate is initially at the discount rate.
Using the supply and demand analysis of the market for reserves, indicate what happens to the federal funds rate, borrowed reserves, and nonborrowed reserves, holding everything else constant, under the following situations. Be sure to fully explain the shifts in reserve demand, reserve supply, and changes in the federal funds rate. Please include a picture of your graphs in the folder below.
Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $100. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement (Percent) 15 10 Simple Money Multiplier Money Supply (Dollars) A lower reserve requirement is associated with a money supply. Suppose the Federal Reserve wants to increase the money supply by $100. Maintain the assumption that banks do not hold excess reserves and that households do not hold currency. If the reserve requirement is 10%, the Fed will use open-market operations to $ worth of U.S. government bonds. Now, suppose that, rather than immediately lending out all excess…
The reserve requirement, open market operations, and the moneysupply Consider a system of banking in which the Federal Reserve uses required reserves to control the money supply (as was the case in the United States before 2008). Assume that banks do not hold excess reserves and that households do not hold currency, so the only money exists in the form of demand deposits. To further simplify, assume the banking system has total reserves of $300. Determine the money multiplier as well as the money supply for each reserve requirement listed in the following table. Reserve Requirement Simple Money Multiplier Money Supply (Percent) 5 (0.5, 1, 5, 10 or 20) (150, 300, 1500, 3000 or 6000) 10 (0.5, 1, 5, 10 or 20) (150, 300, 1500, 3000 or 6000) A higher reserve requirement is associated with a (LARGER or SMALLER) money supply. Suppose the Federal Reserve wants to increase the money supply by $200. Maintain the assumption that banks do not…
Currency held in the vault of a Bank like Wells Fargo is: a) counted as part of both M1 and M2 b) not counted as part of the money supply c) counted as part of M1 but not M2 d) counted as part of M2 but not M1
Which two of the following financial insitituions offer checkable deposits included within the M1 money supply : mutual fund companies ; insurance companies ; commercial banks ; securities firms; thrift instituions ? which of the following is not included in either M1 OR M2: currently held by the public; checkable deposits money market mutual fund balances ; small - denominated (less than $100,000) time deposits ; currency held by banks ; savings deposits?
Please answer all of this!
Compare the methods of controlling the money supply—open market operations, loans to financial institutions, and changes in reserve requirements—on the basis of the following criteria: flexibility, reversibility, effectiveness, and speed of implementation.