Chapter 17, Problem 2WE

To determine

• The growth rate of each aggregate over each of the past three years
• Whether an increase or decrease initiated by the Federal in the rate of growth of the money supply is consistent with the needs of the economy

Concept introduction:

M1:

The money supply consists of physical currency and coin, travellers’ cheque, demand deposits along with other checkable deposits and negotiable order of withdrawal (NOW) accounts. M1 comprises of the most liquid parts of the money supply since it is made up of currency and assets that can be swiftly converted to cash.

M2:

A calculation of the money supply comprises of all elements of Ml along with "near money." Savings deposits, mutual funds,money market securities and other time deposits denote near money. They can be swiftly converted into cash or checking deposits but are notfitto be used as exchange mediums.

Growth rates:

They refer to the percentage change of a specific variable within a specific time period. Growth rates represent the compounded annualized rate of growth of a company's revenues, earnings, dividends or gross domestic product (GDP) and retail sales.