9. The Money Supply Flashcards

1
Q

M0 definition

A

monetary base - the sum of currency in circulation and reserves held at the Central Bank

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2
Q

Definition of M1

A

the money supply - includes only currency and checking deposits. Both of which can be used directly to pay for goods and services

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3
Q

Events in which demand for currency changed

A
  • The Euro Changeover: there was a decline in Currency Prior to Euro Changeover and a Big Increase in Bank Deposits
  • The Pandemic - Large Increase in US Currency in Circulation During the Pandemic
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4
Q

Determinants of the demand for currency changed

A
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5
Q

M2 Definition

A

Money supply = currency and checking deposits (M1) + assets such as savings deposits and money market mutual funds

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6
Q

What are the trends in use of cash and cards for payment?

A

Increasing Usage of Cards Worldwide Hasn’t Killed off Cash - Card payments and cash demand have generally increased since 2007
Large notes (€100 or more) play a much greater role in the supply than you might expect, accounting for about half of the total value in circulation.

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6
Q

What procedures do banks use to issue loans?

A
  • Mortgages: When banks provide a mortgage loan to purchase a property, the money is usually sent to a third party who then ensures the seller obtains the funds and that the buyer obtains the legal deeds for the property. The terminology for this third party differs across the world: In Ireland or the UK it is a solicitor representing the buyer in the US it known as an “escrow agent”.
  • Car Loans are commonly issued directly to dealerships selling the cars with the bank obtaining a title deed for the car.
    In some cases, such as personal loans, banks often issue the loans by crediting an account the borrower has with the bank issuing the loan.
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7
Q

How banks creating deposits within their own bank affects the money multiplier

A
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8
Q

The behaviour of the money multiplier during the Great Depression

A

e and c increased which subsequently led to a sharp decline in the money multiplier
The Federal Reserve during the 1930s did not collect detailed monetary statistics and had not been aware that the money supply was sharply contracting

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