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Chapter 3: Q 1. (page 112)

Go to http://www.federalreserve.gov/releases/h6/Current/.

a. What have been the growth rates of M1 and M2 over the past 12 months?

b. From what you know about the state of the economy, do these growth rates seem expansionary or restrictive?

Short Answer

Expert verified

a.

PeriodM1 growth rateM2 growth rate
Feb. 2021

Mar. 20211.491.23
Apr. 20211.541.31
May-211.751.54
Jun-210.310.20
Jul-210.920.81
Aug. 20211.271.13
Sept. 20210.770.67
Oct. 20210.840.74
Nov. 20211.090.97
Dec. 20210.770.68
Jan. 20220.810.82
Feb. 20220.4353420.38

b.

This growth rate appears to be restrictive as they are very minimal. The growth rate is below 2%, some are even below 1%.

Step by step solution

01

Step 1. Introduction

Money supply can be defined as the volume of money available in the economy at a point. M1, M2, M3, and M4 are different measures of money suuply. M1 measure includes currency in circulation, traveler's checks, and demand deposits. M2 includes M1, money market deposit accounts and money market mutual fund shares, savings deposits, and small-denomination time deposits.

02

Step 2. Explanation 

a. The percentage growth rate for M1 and M2 has been calculated below:

PeriodM1Percentage growthM2Percentage growth
Feb. 202118,367.90
19,649.90
Mar. 202118,641.501.489555119,892.001.23
Apr. 202118,928.501.539575720,152.401.31
May-2119,259.701.749742520,462.901.54
Jun-2119,319.100.30841620,504.800.20
Jul-2119,497.000.920850420,671.100.81
Aug. 202119,745.501.274555120,905.201.13
Sept. 202119,897.600.770302121,045.700.67
Oct. 202120,064.900.840804921,200.500.74
Nov. 202120,283.601.089963121,407.200.97
Dec. 202120,439.500.768601221,553.100.68
Jan. 202220,604.500.807260521,728.900.82
Feb. 202220,694.200.435341821,811.800.38

b. This growth rate appears to be restrictive as they are very minimal. The growth rate is below 2%, some are even below 1%.

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Most popular questions from this chapter

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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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
See all solutions

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