All have the same value as what i lent as long as

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two half dollars, or four quarters. All have the same value as what I lent, as long as inflation doesn’t reduce the purchasing power of money. 28
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Econ 350 U.S. Financial Systems, Markets and Institutions Class 4 For instance, if I lend you a dollar, and then you rip it in half and give it back to me, then I am really no worse off. I just have to scotch tape the bill together. But if I lend you a banana, then you cut the banana in half and return it to me, now I am worse off. I have to eat the banana right away before it rots. It’s much easier to lend dollars than bananas. So the existence of money facilitates the process of borrowing and lending in our economy. Measuring Money Since money is liquidity or acceptability, then money can be measured differently depending on the standard of liquidity which is employed. Because of this, the Fed uses several measures of money to reflect different levels of liquidity in assets. These are known as M1, M2, and M3, often called monetary aggregates. As we move from M1 to M2 to M3, more and more less liquid measures of money are included. M1 M1 is the most liquid measure of money. M1 = currency and coins + checking account deposits (demand deposits) + travelers’ checks + other checkable deposits Other checkable deposits include share draft accounts at credit unions and Negotiable Order of Withdrawal (NOW) accounts at commercial banks. M1 includes the assets that most everyone is willing to accept in exchange for goods and services or as payments for debts. In dollar terms, it is the smallest measure of money since it includes the fewest categories. M2 M2 is the second measure of money. It includes more assets than M1 so is a larger measure. M2 = M1 + small denomination time deposits (< $100,000) (CDs) + savings deposits + money market deposit accounts 29
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Econ 350 U.S. Financial Systems, Markets and Institutions Class 4 + non-institutional money market mutual fund shares M3 M3 is the broadest measure of the money supply, in that it includes the most assets and is the largest number of the three M3 = M2 + large denomination time deposits (>$100,000) + institutional money market mutual funds + repurchase agreements + term Eurodollars Here, $100,000 is used as the dividing line between large and small time deposits because that is the limit of FDIC insurance. In 2008 the FDIC limit was increased to $250,000, but the increase is temporary and the definition of M2 has not changed. “Institutional” refers to large investors such as corporations, municipal governments, mutual funds, and pension plans. A repurchase agreement (or Repo) is a loan where a security is used as collateral. If a borrower needs temporary funds, they will sell a security at a certain price to obtain funds, and then buy back the security at a slightly higher price once the funds are no longer needed. The lender profits due to the price differential. Eurodollars are dollars held in foreign banks outside the United States or in foreign branches of U.S. banks. .
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