MEASURING THE MONEY SUPPLY
Currency is printed by the Bureau of Engraving at the request of the Federal Reserve System.
Currency is issued by the Federal Reserve System.
Our dollar bills are FEDERAL RESERVE NOTES
FEDERAL RESERVE NOTES are accepted because they are LEGAL TENDER
MEASURING THE SUPPLY OF MONEY
M1: (Money used for day to day transactions.)
1. Coins and currency held outside banks
2. Demand deposits
3. Traveler’s checks
4. Other checkable deposits
The types of money included in M1 are HIGHLY LIQUID.
They can easily and rapidly be transformed into cash.
Assets that can be turned into cash rapidly and with little loss of value.
M1 contains those portions of the money supply that are closely connected to current economic activity.
Money included in M1 is related to money being used as a medium of exchange rather than money being used as a store
OTHER MEASURES OF THE MONEY SUPPLY
M2 = M1
+ money market fund shares
+ savings accounts less than $100,000
+ small time deposits
Small time deposits are certificates of deposit less than $100,000
M2 is less liquid than M1
M2 is partially used as a store of value
M3 = M2
+ large sav