Year Currency in circulation Traveler\'s checks Checkable deposits Money market
ID: 1247510 • Letter: Y
Question
Year Currency in circulation Traveler's checks Checkable deposits Money market funds Time deposits smaller than $100,000 Savings deposits M1 M2 Currency in circulation as a percentage of M1 Currency in circulation as a percentage of M21998 460.5 8.5 626.5 728.9 952.4 1,605.0
1999 517.8 8.6 596.2 819.7 956.8 1,740.3
2000 531.2 8.3 548.0 908.0 1,047.6 1,878.8
2001 581.2 8.0 592.6 962.3 976.5 2,312.8
2002 626.3 7.8 585.6 885.3 896.0 2,778.2
2003 662.5 7.7 635.9 777.4 818.7 3,169.
2004 697.6 7.5 671.2 697.1 829.9 3,518.3
2005 723.9 7.2 643.4 699.9 995.8 3,6721.4
2006 748.9 6.7 611.4 799.4 1,170.4 3,698.6
2007 759.0 6.3 599.2 976.1 1,216.8 3,889.8
a.Complete the table by calculating M1 , M2 currency in
circulation as a percentage of M1 , and currency in circulation as a
percentage of M2. What trends or patterns about M1, M2, currency in
circulation as a percentage of M1, and currency of circulation as a percentage of
M2 do you see? What might account for these trends?
Explanation / Answer
From 1998 to 2007, there is no obvious trend in M1. M1 grew by $269 billion but was essentially stable from 1998 to 2002; all of this growth occurred between 2003 and 2007. There is, however, a clear upward trend throughout the period for M2, which grew by $3065.4 billion. Currency as a percentage of M1 grew from 42 percent to over 55 percent from 1998 to 2007, but currency as a percentage of M2 remained relatively constant, varying from a low of 10.2% to a high of 10.9%. The increase in currency as a percentage of M1 could reflect increased use of credit cards, causing a reduction in the importance of traveler
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