How do we measure money which particular assets can

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Unformatted text preview: y? Which particular assets can be called  money ? Construct monetary aggregates using the concept of liquidity: M1 (most liquid assets) = currency + traveler's checks + demand deposits + other checkable deposits. Measuring Money M2 (adds to M1 other assets that are not so liquid) = M1 + small denomination time deposits + savings deposits and money market deposit accounts + money market mutual fund shares. Monetary Aggregates Monetary Aggregates M1 vs. M2 Does it matter which measure of money is considered? M1 and M2 can move in dierent directions in the short run (see gure). Conclusion: the choice of monetary aggregate is important for policymakers. Where are all the U.S. Dollars? The more than $2,000 of U.S. currency held per person in the United States is a surprisingly large number Where are all these dollars and who is holding them? Criminals Foreigners Growth Rates of M1 and M2 Aggregates Origins of the Federal Reserve System Resistance to establishment of a central bank Fear of centralized power Distrust of moneyed interests No lender of last resort Nationwide bank panics on a regular basis Panic of 1907 so severe that the public was convinced a central bank was needed Federal Reserve Act of 1913 Elaborate system of checks and balances Decentralized Eco 029 What is Money? (Chapter 3) Central Banks and the Fed...
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