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
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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