ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Some problems are; Fed cannot control the supply of money nicely because depositors’ and bankers’ behavior influences the supply. The overall assets of the bank are increased every time a dollar is credited to a financial institution. The bank will maintain some of it as appropriate but will lend the surplus reserves.

Detailed explanation-2: -M2 is a measure of the money supply that includes cash, checking deposits, and other types of deposits that are readily convertible to cash such as CDs. M1 is an estimate of cash and checking account deposits only. The weekly M2 and M1 numbers are closely monitored as indicators of the overall money supply.

Detailed explanation-3: -There are several standard measures of the money supply, including the monetary base, M1, and M2. The monetary base: the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve).

Detailed explanation-4: -MO Physical paper and coin currency in circulation, plus bank reserves held by the central bank also known as the monetary base. M1: All of M0, plus traveler’s checks and demand deposits. M2: All of M1, money market shares, and savings deposits.