Distinguish between M1 and M2. What are near monies?

Answer 1

M1:

The narrow-range monetary aggregate for the U.S. economy containing the combination of currency (and coins) issued by government and held by the nonbank public and checkable deposits issued by banking institutions. M1 contains the two items that function as THE medium of exchange for the U.S. economy. M1 is one of three monetary aggregates tracked and reported by the Federal Reserve System. The other two are designated M2 and M3.
M1 is the official money supply for the U.S. economy. If someone makes payment to purchase a good, service, or resource, they generally do so using one of the two primary components of M1--paper currency (and metal coins) or the funds deposited in a checking account.
Currency
Approximately one-half of M1 is comprised of paper currency and metal coins issued by government. In particular, M1 includes ONLY the currency and coins held by the nonbank public, which is anyone and everyone EXCEPT commercial banks and government banking authorities. Currency and coins held by the nonbank public also go by the phrase "currency in circulation."

Currency has taken many forms over the years and has been issued or authorized by different entities. The present manifestation of currency includes Federal Reserve notes issued by the Federal Reserve System and metal coins issued by the U.S. Department of the Treasury. In the not too distant past, currency also included gold and silver certificates issued by the U.S. Department of the Treasury and bank notes issued by commercial banks.
* Federal Reserve Notes: These are issued under the authority of the Federal Reserve System. They come in denominations of $1, $5, $10, $20, $50, and $100. A few bills carrying a $2 are encountered from time to time, but they have largely vanished from circulation. Denominations larger than $100 ($500, $1,000, $5,000, and $10,000) were also available once upon a time, but they too are seldom seen beyond the collections of numismatics. In a never ending effort to thwart counterfeiters, Federal Reserve notes underwent a major redesign beginning in the 1990s.

* Treasury Coins: These are issued under the authority of the U.S. Department of the Treasury. They come in denominations of one cent, five cents, ten cents, twenty-five cents, fifty cents, and one dollar. The coins were once made from pure metal (copper, nickel, and silver), with relative sizes reflecting the value of the metal content. However, pure metals gave way to less expensive metal alloys as coins made the transition from commodity money to fiat money.

Checkable Deposits
The other half of M1 is comprised of checkable deposits, which are checking account balances maintained by commercial banks (including credit unions, savings and loan associations, and mutual savings banks). Checking account balances also go by the names "transactions balances" or "transactions deposits" to reflect the role they play in the transactions for goods and services.

An assortment of different types of checking accounts are included in this M1 category.

* Demand Deposits: These are standard checking accounts maintained by commercial banks. They pay not interest on balances and as the name indicates, the funds can be withdrawn "on demand," which is accomplished by writing a check. This category also includes any travelers checks issued by commercial banks.

* Other Checkable Deposits at Banks: These are nonstandard "checking" accounts maintained by commercial banks, including NOW (negotiable orders of withdrawal) accounts or ATS (automatic transfer service) accounts. These accounts may or may not pay and interest and they may or may not be accessed by using paper checks, but they are used to make payments.

* Other Checkable Deposits at Thrifts: These are similar NOW and ATS accounts maintained by thrift institutions (credit unions, savings and loan associations, and mutual savings banks). Like those maintained by banks, they may or may not pay and interest and they may or may not be accessed by using paper checks, but they are used to make payments.

Travelers Checks
A third item also included in M1 is travelers checks issued by nonbank institutions. Travelers checks issued by banks are included under the demand deposit component of checkable deposits. This particular category includes travelers checks issued by other institutions, such as credit card companies (American Express, Visa, MasterCard). Nonbank travelers checks are less than one percent of M1.
The Other Two
M1 is the narrow-range monetary aggregate. Two other monetary aggregates tracked by the Federal Reserve System are M2 and M3.

M2:

The medium-range monetary aggregate for the U.S. economy containing the combination of M1 (currency and checkable deposits) and short-term, small denomination near monies. M2 contains financial assets that either function directly as money for the U.S. economy or can be easily and quickly converted into money. The near monies added to M1 to derive M2 include savings deposits, certificates of deposit, money market deposits, and money market mutual funds. M2 is one of three monetary aggregates tracked and reported by the Federal Reserve System. The other two are designated M1 and M3.

M2 is a broader measure of the money supply for the U.S. economy that includes not only the assets directly used for transactions (currency and checkable deposits), but also highly liquid bank accounts used for short-term savings. Many economists and policy makers look to M2 as a better measure of the economy's money supply than M1.
Some Recent Numbers
The table to the right presents values for M2 and its two key components, M1 and near monies. While these numbers are likely to change as economic conditions change, they provide a bit of insight into the money supply.
* First, in early 2004 M2 was running at just over $6.2 trillion. This was approximately $21,500 for every man, woman, and child in the United States. This average amount includes both spendable money (M1) and assorted savings accounts.

* Second, about 20 percent of M2 consists of spendable currency and checkable deposits and 80 percent is near monies. This indicates that people tend to keep more of their financial wealth stashed away in savings accounts than in their checking accounts (or cash on hand).

* Third, the bulk (about two-thirds) of M2 near monies consists of savings deposits (and money market deposits at banks). Small denomination time deposits (certificates of deposit) and nonbank money market mutual funds account for the remaining one-third of these near monies.

Near Monies
M2 is the sum of M1 and short-term, small denomination near monies. Near monies are financial assets (primary bank accounts) that can be easily and quickly converted to currency or checkable deposits with little or no loss of value. These assets are almost money, but not completely.

The four primary near money assets added to M1 to calculate M2 are: (1) savings deposits, (2) money market deposits, (3) certificates of deposit, and (4) money market mutual funds.

* Savings Deposits: These are bank deposits held in standard, interest-paying savings accounts at traditional commercial banks and other depository thrift institutions (credit unions, savings and loan associations, and mutual savings banks). The interest rates paid on savings deposits are generally less than other banks accounts. These deposits are easily and quickly withdrawn as cash or transferred into checking accounts, making them among the most liquid nonmoney deposits available.

* Money Market Deposits: These are bank deposits in accounts that pay higher interest rates than savings accounts and which have limited check writing capability. While checks written on these accounts work just like standard checks, check writing is usually limited to a few checks per month (say 3 to 5) and/or a minimum amount per check (say $250 per check).

* Certificates of Deposit: These are bank deposits in accounts that pay higher interest rates than savings accounts but with restrictions on the minimum amount of the deposit and the length of time before the deposit can be withdrawn. Originally the depositor received an actual certificate (a piece of paper) specifying the terms of the deposit, length of time and interest rate paid. Now, like other accounts, this information is stored in an electronic database.

* Money Market Mutual Funds: These are deposits with nonbank mutual fund companies that are similar to money market bank deposits. They also pay higher interest rates than savings accounts and have limited check writing options. Money market mutual funds used for individual retirement accounts (IRA) or Keough accounts are not included.

All of these near monies are extremely liquid and flow easily between bank checking accounts and currency. The near monies added to M1 to obtain M2 are small denomination and are commonly used by households and consumers for to stockpile saving. Savings deposits, money market deposits, and certificates of deposit are less than $100,000.
A Better Money Measure?
M2 is considered by many policy makers and economists as a better measure of the economy's spendable, liquid assets than M1. The near monies included in M2 can be easily and quickly converted to either currency or checkable deposits. These near monies are not perfectly liquid, like M1, but they are the next best thing.

For example, suppose that Alicia Hyfield's checking account is hovering in the one-digit range, but her near money savings account is substantially bigger. Now suppose that a potential purchase of designer jeans, running at $50, strikes her fancy. Will she pass on this purchase lamenting the minimal balance in her checking account? Or will she pursue it knowing that she has ample funds that can be easily transferred from savings to checking? If she leans toward the second option, then she is operating under the notion that are savings extremely liquid, and that M2 might be a better measure of total money for the economy than M1.

The ease with which near monies can be transferred into M1 motivates a lot of people, especially economists, to argue that M2 is the best measure of the total amount of money in circulation. As such, most government stabilization policies dealing with control of the money supply primarily focus on M2 rather than M1.
The Other Two
M2 is the medium-range monetary aggregate. Two other monetary aggregates tracked by the Federal Reserve System are M1 and M3.

* Narrow-Range Money: M1: This is the combination of currency (and coins) issued by government and held by the nonbank public and checkable deposits issued by banking institutions. M1 contains the two items that function as THE medium of exchange for the U.S. economy.

* Board-Range Money: M3: This is M2 plus the addition of several slightly less liquid, investment-type near monies. The near monies added to M2 to obtain M3 include larger denomination certificates of deposit, larger money market deposits, repurchase agreements, and Eurodollars.

NEAR MONIES:

Relatively liquid financial assets that are not used as the medium of exchange, but which can be quickly and easily converted to money with little or no loss of value. One group of near monies, best thought of as household savings, are added to M1 to obtain M2 and another group of near monies, best thought of as short-term institutional investments, are added to M2 to obtain M3.
Near monies are financial assets that are almost money, but not completely. These assets are easily "cashed in" and converted to either currency or checkable deposits. Near monies are important components in the progressive derivation of the monetary aggregates M2 and M3.
Near monies come in two varieties that reflect the relative degree of liquidity and the use of the financial asset.

* Savings Near Monies: These near monies are the most liquid nonmoney assets available. They are easily and quickly converted to currency and checkable deposits. Saving near monies, as the name suggests, are primary used by the household sector as savings. Households use of these near monies as a place to "store" future spending, to earn a little interest, but primarily to maintain liquidity. The four types of savings near monies added to M1 to obtain M2 are savings deposits, money market deposits, certificates of deposit, and money market mutual funds.

* Institution Investment Near Monies: These near monies are extremely liquid, but not quite as liquid as the savings near monies. Institutional investment near monies are used by businesses, banks, and other organizations as short-term investments. Institutions use these near monies as short-term investments, which generate and interest rate, but which also maintain a fair amount of liquidity. The investors want quick, easy access to the funds, but they still want to earn some interest. The four types of institutional investment near monies added to M2 to obtain M3 are institutional money market mutual refunds, large-denomination certificates of deposit, repurchase agreements, and Eurodollars.

Answer 2

Near Monies

Answer 3

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Distinguish between M1 and M2. What are near monies?

Answer 4

So you want to find the gravitational force F. Rewriting it: F = G * m1 * m2 / r^2 G = 6.673*10^-11 N m^2/kg^2 m1=1.9*10^27 kg m2=4.8*10^22 kg r = distance between m1&m2 = 670,900 m Plug these in to find F: F = ( 6.673*10^-11 ) * ( 1.9*10^27 ) * ( 4.8*10^22 ) / ( 670,900 )^2 Hope that helps.

Answer 5

if you are planning to leave money in a savings account for 10 years, would it be better to receive simple interest or compound interest?