Economics
4.) M1 = currency (in circulation) + checkable deposits. The largest component of M1 is currency (52 percent), and it is the only part that is legal tender. If the face value of a coin were not greater than its intrinsic (metallic) value, people would remove coins from circulation and sell them for their metallic content. M2 = M1 + noncheckable savings deposits + money market deposit accounts + small time deposits + money market mutual fund balances. M3 = M2 + large time deposits (those of $100,000 or more). Near-monies are components of M2 and M3 not included in M1. M3 is distinguished from M2 by large time deposits (certificates of deposits).
5.) There is no concrete backing to the money supply in the United States. Paper money, which has no intrinsic value, has value only because people are willing to accept it in exchange for goods and services, including their labor services as employees. And people are willing to accept paper as money because they know that everyone else is also willing to do so. If the monetary authorities were issuing new banknotes at a rate far in excess of available output, the acceptability of paper money would diminish. People would start to worry about whether the banknotes would be worth much after they received them. Checks are part of the money supply and are not legal tender, but people accept them willingly from people believed trustworthy. The value or purchasing power of money is inversely related to the price level. The Board of Governors of the Federal Reserve System (the Fed) is responsible for managing the United States’ money supply so that money retains its value.
6.) In the first case, the value of the dollar (in year 2, relative to year 1) is $.80 (= 1/1.25); in the second case the value is $2 (= 1/.50). The price level and the value of the dollar are inversely related.
7.)
a) The level of nominal GDP. The higher this level, the greater the amount of...
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