HowIsMoneyMeasuredintheUnitedStatesToday?14.2LEARNINGOBJECTIVEDiscussthedefinitionsof themoneysupplyused intheUnited Statestoday@2015PearsonEducafion,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 11 How Is Money Measured in the United States Today? 14.2 Discuss the definitions of the money supply used in the United States today
U.S.MoneySupply,July2013How much money is thereTraveler'schecksinAmerica?Thisisharder$3.6billionto answer than it firstappears, because youhave to decide what tocount as “money".Currency,$1,130.3billionM1 is the narrowestCheckingdefinition of the moneyaccountdeposits,$1,403.1bilionsupply: the sum ofcurrency in circulation.checking account deposits(a)M1=S2,537.0billioninbanks,andholdingsofFigure 14.1Measuringthemoneytraveler's checks.supply，July2013There is a relatively large amount of U.S. currency, because peoplein other countries sometimes hold and use U.S. dollars instead oftheir own currency.12@2015PearsonEducation,lnc
© 2015 Pearson Education, Inc. 12 U.S. Money Supply, July 2013 How much money is there in America? This is harder to answer than it first appears, because you have to decide what to count as “money”. M1 is the narrowest definition of the money supply: the sum of currency in circulation, checking account deposits in banks, and holdings of traveler’s checks. There is a relatively large amount of U.S. currency, because people in other countries sometimes hold and use U.S. dollars instead of their own currency. Measuring the money supply, July 2013 Figure 14.1
U.S.MoneySupply,July2013continuedMoneymarketmutualfundshares$666.7billionSmall-denominationTraveler's checks,M1,$3.6billiontime deposits,$2.537.0billion$557.5billionCurrency,$1,130.3billionCheckingaccountSavingsdeposits,accountdeposits$1,403.1billion$6.937.7billion(a)M1=S2,537.0billion(b) M2 = $10,698.9 billionFigure 14.1Measuring the moneysupply，July2013M2 is a broader definition of the money supply: it includes M1, plussavings account balances,small-denomination time deposits,balances inmoneymarketdepositaccounts,and non-institutionalmoney market fund shares.132015PearsonEducation,lnc
© 2015 Pearson Education, Inc. 13 U.S. Money Supply, July 2013—continued M2 is a broader definition of the money supply: it includes M1, plus savings account balances, small-denomination time deposits, balances in money market deposit accounts, and non-institutional money market fund shares. Measuring the money supply, July 2013 Figure 14.1
M1VS.M2When we want to talk about the money supply, which definitionshould we use?Either one might be valid, but we are mostly interested in money'srole as the medium of exchange, so this suggests using M1.In our discussion of money, we will therefore:1. Treat both currency and checking account balances as“money"but nothing else. (Traveler's checks are insignificant.)2. Realize that banks play an important role in the money supplysince they control what happens to money when it is in a checkingaccount.@2015PearsonEducation,Inc.14
© 2015 Pearson Education, Inc. 14 M1 vs. M2 When we want to talk about the money supply, which definition should we use? Either one might be valid, but we are mostly interested in money’s role as the medium of exchange, so this suggests using M1. In our discussion of money, we will therefore: 1. Treat both currency and checking account balances as “money”, but nothing else. (Traveler’s checks are insignificant.) 2. Realize that banks play an important role in the money supply, since they control what happens to money when it is in a checking account
Whatabout CreditandDebitCards?Debit cards directly access checking accounts, but the cardis notmoney, the checking account balance is.Credit cards are a convenient way to obtain a short-term loan fromthe bank issuing the card. But transactions are not really completeuntil you pay the loan off-transferring money to pay off the creditcard loan.So credit cards do not represent money.@2015PearsonEducation,Inc.15
© 2015 Pearson Education, Inc. 15 What about Credit and Debit Cards? Debit cards directly access checking accounts, but the card is not money, the checking account balance is. Credit cards are a convenient way to obtain a short-term loan from the bank issuing the card. But transactions are not really complete until you pay the loan off—transferring money to pay off the credit card loan. • So credit cards do not represent money