Problem set 4

May 12th, 2015
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ECON 214PROBLEM SET 41. What determines whether a financial asset is included in the M1 money supply? Why areinterest-earning checkable deposits included in M1, whereas interest-earning savingsaccounts and Treasury bills are not?In order for an asset to qualify in the M1 money supply it must be either currency,demand deposits, or other checkable deposits. The main distinguisher between M1 andother assets is the liquidity aspect. Interest-earning savings accounts and T-bills are notliquid enough to be considered M1 so they fall instead into the near monies of M2.2. Why are banks

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