This preview shows page 1. Sign up to view the full content.
Unformatted text preview: anded the range of checkable deposits that banks can offer and made it possible for thrift institutions–savings and loan associations, mutual savings banks and credit unions–also to issue some types of checkable deposits. Thus, the deposit component of M1 now includes not only demand deposits issued by banks, but also ATS (Automatic Transfer to Savings), NOW (Negotiable Orders of Withdrawal) and Super–NOW accounts offered by banks and thrifts, and share draft accounts issued by credit unions. These new types of checkable deposits pay interest, while demand deposits do not. By the end of 1983, demand deposits' share of total checkable deposits had fallen to 65 percent. The M1 measure of money often is referred to as the “Transactions definition” of money because it confines money to those things that can be used directly to make payments: checkable deposits and currency. The Federal Reserve also computes and publishes two broader measures of money–M2 and M3. These other measures recognize that there are a number of different types of deposits and other financial assets that can readily be converted into a spendable form even though they cannot themselves be used to make payments. Passbook savings and time accounts at banks and thrifts are a familiar example of this type of asset. Accounts at money market mutual funds are another example. These highly liquid assets are added to those comprising M1 to make M2 and M3. These broader measures of money are used to gauge the amount of readily spendable funds at the public's disposal. 2-16 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 2. THE MONEY MARKET
Depository institutions–banks and thrifts operate under a fractional–reserve system: each institution is required by Federal law to hold reserves equal to a certain fraction of specified types of deposits. These required reserves can be held either as vault cash (currency on hand) or as deposits at a Federal Reserve Bank. Reserve requirements have not always b...
View Full Document
This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10