Recent financial turmoil has caused many people to increase saving and to prefer assets that are perceived to be relatively safe and liquid. What are the likely effects on M1 and M2?
What will be an ideal response?
Increased saving implies reduced consumption, so holding of the most liquid assets, M1, should decline. Instead, people will hold more of the less liquid, interest-bearing assets within M2. If people are shifting away from illiquid assets like corporate stock in favor of assets like money market mutual fund shares, then M2 should rise.
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Which of the following statements is true?
A) Producer surplus measures the total benefit received by producers from participating in a market. B) When a market is in equilibrium consumer surplus equals producer surplus. C) Consumer surplus measures the total benefit from participating in a market. D) Consumer surplus measures the net benefit from participating in a market.
Which of the following is often referred to as the basic postulate of economics?
a. Individuals act only out of selfish motives. b. Incentives matter--individuals respond in predictable ways to changes in personal costs and benefits. c. The accuracy of the assumptions is the best test of an economic theory. d. The value of a good is objective; it is equal to the cost of producing the good.