The division monetary aggregates are used by most central banks around the world

Question

The division monetary aggregates are used by most central banks around the world, including the Federal Reserve, in addition to Ml and M2 money aggregates. Which of the following are characteristic of the Division aggregates? Check all that apply. The division indexes assume that as the interest rate on retail money-market mutual funds (MMMFs) declines, people freeze funds on those accounts, which makes them less liquid. The division indexes assume that when the interest rate on retail money-market mutual funds (MMMFs) declines, the account becomes more liquid. The division indexes are less accurate predictors of overall movements in the economy than M1 or M2. Money with zero maturity (MZM) is another alternative measure of money. Which of the following are characteristic of MZM? Check all that apply. Is defined by the formula M2 + Bonds Mutual Funds Is defined by the formula M1 - Small Time Deposits + Bond Mutual Funds Includes any asset that can be spent immediately Use the data in the following table to calculate the amount of MZM. (All data are in billions of dollars.) Based on the change in MZM between 2013 and 2017, it is likely that the economy experienced during this period.

Explanation / Answer

1.  The divisia index assumes that as the interest rate on retail money market mutual funds declines, people freeze funds on those accounts, which make them less liquid.

2. Is defined by M2+Bonds mutual funds.

3. MZM represents all money in M2 less the time deposits, plus all money market funds.
MZM for 2013 is (8854-21.8+1312)=10144.2

MZM for 2017 is (4940-25.3+1051)=5965.7

Based on the change in MZM between 2013 and 2017, it is likely thta the economy experienced RECESSION during this period.

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