assignment1a - Credit cards and travelers' checks are...

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Credit cards and travelers' checks are widely accepted as a medium of exchange. Should they be considered part of the money supply? Explain your answer using the measures of the money supply. M1 is a containment of the money supply in the U.S. It contains public fiduciary instruments  such as travelers checks, deposits which can have drafts written against them and demand  accounts. M2 contains all of M1 plus savings accounts and demand deposits of less than  $100,000 plus money market funds. Credit cards are not considered M1 or M2 and are not part  of the money supply because it is a loan that can’t be readily converted to cash nor considered  a liquid asset. Another example is if I used a credit card to purchase something, I can’t take that  item to any another person and trade that item for cash. One of the functions of the Federal Reserve Bank is to control the nation's money supply.
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assignment1a - Credit cards and travelers' checks are...

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