• Money consist of coins, paper money, demand (or checking) deposits, and checklike deposits (commonly called NOW
– or negotiable order of withdrawal – accounts) held by the nonbank public
– Coins and paper money together are considered currency
– Six of every ten dollars in our money supply are demand deposits and other checkable deposits
• Virtually all the rest is currency
– Checks are not money but checking deposits are
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2002 by The McGraw-Hill Companies, Inc. All rights reserved.
13-12
Federal Reserve Statistical Release, April 5, 2001
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2002 by The McGraw-Hill Companies, Inc. All rights reserved.
13-13
1

Currency
+ Demand deposits
+ Other checkable deposits
+ Traveler’s checks
M1(traditionally our basic money supply)
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2002 by The McGraw-Hill Companies, Inc. All rights reserved.
13-14
= $1,368.4 (billions of dollars),
June 2005
The Federal Reserve uses three definitions of the money supply: M1, M2, and M3.
M1 is equally split between currency in circulation and checkable bank deposits
Currency
+ Demand deposits
+ Other checkable deposits
+ Traveler’s checks
M1
+ Savings deposits
+ Small-denomination time deposits (less than $100,00)
+ Money market mutual funds held by individuals
M2
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2002 by The McGraw-Hill Companies, Inc. All rights reserved.
13-15
2

= $6,510.0 (billions of dollars),
June 2005
• The Federal Reserve uses three definitions of the money supply: M1, M2, and M3.
M2 has a much broader definition: it includes M1, plus a range of other deposits and deposit-like assets, making it about three times as large .
Currency
+ Demand deposits
+ Other checkable deposits
+ Traveler’s checks
M1
+ Savings deposits
+ Small-denomination time deposits (less than $100,00)
+ Money market mutual funds held by individuals
M2
+ Large denomination time deposits (more than $100,00)
+ Money market mutual funds held by institutions
+ Other less liquid assets
M3
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M1, M2, and M3, January 2001
Federal Reserve Bulletin
M3=7,361
Money market mutual funds held by institutions
903
M1=1,107 M2=5,111
Currency in circulation
539
Traveler's checks
8
Other checkable deposits
251
M1
1107
Saving deposits
1970
Large-denomination time deposits
797
Other less liquid assets
550
Demand deposits
309
Money market mutual funds held by individuals
985
Small-denomination time deposits
1049
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2002 by The McGraw-Hill Companies, Inc. All rights reserved.
M2
5111
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3

Annual Percentage Change in the Money Supply, M1, 1960-2000
2
0
6
4
Ð2
Ð4
1960
20
18
16
14
12
10
8
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
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13-18
• Is the Credit Card in your wallet Money?
– It is accepted everywhere
(Medium of exchange)
– You get a bill (Unit of Account)
4