[NAME] Econ 301 – Money and Banking HW#2 Question 1 Match each of the following items with the monetary aggregate it is part of as M1, M2 or None (a) Money market deposit account – M2 (b) NOW account - M1 (c) Retail money market mutual fund shares – M2 (d) Treasury bills - None (e) Savings deposits – M2 (f) Small CDs - M2 (g) Negotiable CD – None (h) Demand deposits – M1 (i) Traveler's check – M1 Question 2 Suppose that your bank lowers its minimum balance requirement on NOW accounts. You take out $500 out of your NOW account and put in a money market deposit account that pays a higher interest rate. What is the overall effect an M1 and M2? The overall effect would be a decrease in M1 in the other checkable deposit category, and an increase into the money market deposit account in M2. Since M2=M1, the overall effect is negligible in this change, although these two measures are not equivalent and do not always move together. Question 3
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