1. Which of the following are reasons that caused the Fed to abandon its practic
ID: 1112542 • Letter: 1
Question
1. Which of the following are reasons that caused the Fed to abandon its practice of setting money supply targets?
I. expiration of the legislation requiring the Fed to do so
II. banking deregulation in the 1980s allowing for MMDAs
III. financial development of retail sweep programs
a. II and III only
b. I, II, and III
c. I and III
d. I and II only
2. Which of the following statements is true?
a. The introduction of new financial products and changes in the ways people pay for transactions have blurred the distinction between M1 and M2 so that the Fed no longer has reliable estimates of the money demand curve.
b. Unlike the demand for M1, the demand for the much broader M2 money aggregate is unaffected by the financial innovation in interest bearing checking deposits.
c. With the proliferation of new financial products, the close relationship between M1 growth and output growth has been further strengthened.
d. Advancements in statistical methods and data collection have made it possible for the Fed to closely link the changes in the rate of growth in M1 and M2 with changes in the rate of growth of GDP.
3. Some economists have proposed a new definition of money that would better track money demand. One such measure is the MZM or “money zero maturity”. What kind of items will be included in this measure?
a. Assets that can be converted to cash with zero penalty and securities that are issued by the U.S. government since these are virtually risk free
b. Any deposits that do not have specified maturity terms, just as long as these deposits are fairly liquid and are used by consumers to pay for transactions.
c. Liquid accounts held by the public, regardless of whether they are classified as M1 or M2 and the reserves of banks that earn no interest since these could be used to create money.
d. Assets that have no maturity such as cash, checking accounts, and shares of stocks.
Explanation / Answer
1.
b. I, II, and III
the above is the answer
2.
The introduction of new financial products and changes in the ways people pay for transactions have blurred the distinction between M1 and M2 so that the Fed no longer has reliable estimates of the money demand curve.
the above is the answer
3.
Any deposits that do not have specified maturity terms, just as long as these deposits are fairly liquid and are used by consumers to pay for transactions.
the above is the answer
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