The linear relationship between the M1 Money Supply and the 10-year Treasury Bonds Concept introduction: M1 Money Supply - In the US it implies the most liquid form of money. It is the currency or near currency and includes currency and money in checking accounts or demand deposits. 10-Year Treasury Bonds - It is the certificate or security issued by the US government against the loan it takes for a period of 10 years. The bond yields a given rate of return and this rate serves as the bench mark which dictates the interest rate in the economy. Liquidity Effect - It refers to an economic predicament where a persistent rise in the exogenous supply of narrow money causes the nominal interest rates to fall. It upholds an inverse relationship between the M1 Money Supply and the Interest rate.

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Chapter 5, Problem 2DAP

To determine

The linear relationship between the M1 Money Supply and the 10-year Treasury Bonds

Concept introduction:

M1 Money Supply - In the US it implies the most liquid form of money. It is the currency or near currency and includes currency and money in checking accounts or demand deposits.

10-Year Treasury Bonds- It is the certificate or security issued by the US government against the loan it takes for a period of 10 years. The bond yields a given rate of return and this rate serves as the bench mark which dictates the interest rate in the economy.

Liquidity Effect- It refers to an economic predicament where a persistent rise in the exogenous supply of narrow money causes the nominal interest rates to fall. It upholds an inverse relationship between the M1 Money Supply and the Interest rate.

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