Chapter 13 – 1 to 4

1.
a. Shares of stock are not a factor of either M1 or M2, so drawing rarer percentages does not
lessen either M1 or M2. Nonetheless, placing the money into your savings account boosts M2,
since savings accounts are part of M2 (but not part of M1). M1 does not alter.

b. Shares of stock are not a factor of either M1 or M2, and so drawing limited shares does not
lessen either M1 or M2. Nonetheless, inserting the money into your checking account increases
M1, since checking accounts are part of M1. It also improves M2, since M1 is part of M2.

c. Striding money from savings to checking has no consequence on M2 since both savings
account and checking accounts are encompassed in M2. Regardless, since savings accounts are
not part of M1, moving money from savings to checking does increase M1.

d. Placing cash into a checking account does not alter M1 or M2. You are barely transferring
money from one factor of M1 (currency in circulation) to another factor of M1 (checkable
deposits).

e. Placing $0.25 into your savings account does not affect M2 since both savings accounts and
currency in circulation are in M2. Nonetheless, since savings accounts are not part of M1,
depositing the $0.25 into your savings account reduces M1.

2.
a. Mother-of-pearl is stock money since the husks have other usages (for instance, for shirt
buttons).

b. Salt is commodity money since it has other purposes.

c. The "rye mark" is commodity-backed money since its absolute value is ensured by a pledge
that it can be restored into useful goods (grain rye).
d. Ithaca hours are fiat money because their value originates completely from their status as a
means of payment in Ithaca.

3.

M1 comprises currency in circulation, traveler's checks, and checkable deposits. M2 consists of

M1 plus money funds, time deposits, and savings deposits. From 1995 to 2004, there is no
noticeable trend in M1. M1 grew by $236 billion (or 21% from 1995 to 2004) but was virtually
safe from 1995 to 2001; all of this development happened between 2002 and 2004. there is,
however, a clear upward trend throughout the period for M2, which grew by $2, 756.4 billion (or
76% from 1995 to 2004). Currency as a percentage of M1 grew from 33 percent to over 51
percent from 1995 to 2004, but currency as a percentage of M2 remained relatively constant,
varying from a low of 10.2% in 1995 to a high of 11.1% in 1999. The increase in the currency as
a percentage of M1 could reflect increased use of credit cards, causing a reduction in the
importance of traveler's checks and checkable deposits. Yet, since currency as a percentage of
M2 did not change, it could also reflect a shift from checkable deposits to money funds, time
deposits, and saving deposits.
4.
a. $95 on your campus meal card is related to a gift certificate. Because it can only be utilized for
one goal, it is not part of either M1, M2.

b. $0.55 in the different cups of your car is part of currency in circulation; it is part of both M1
and M2.

c. $1, 663 in your savings account isn't rapidly accessible as a medium of trade, so it is not a
fraction of M1; but because it can readily be restored into cash or checkable deposits, it is part of
M2.

d. A $459 balance in your checking account is part of M1 and M2; it affects a checkable deposit.

e. 100 shares of stock are not part of either M1 or M2. Although an asset, the stock is not a
highly liquid asset.

f. A $1,000 line of credit on your sears credit card account is not part of either M1 or M2 because
it does not represent an asset.