Mgt411 GDB No. 1 Solution
Tuesday, April 12, 2011 Posted In Bank , MGT Edit ThisSemester “Spring 2011”
“Money & Banking MGT(411)”
This is to inform that Graded Discussion Board (GDB) will be opened according to the following schedule
Schedule
Opening Date and Time
April 11, 2011 At 12:01 A.M. (Mid-Night)
Closing Date and Time
April 13 , 2011 At 11:59 P.M. (Mid-Night)
Topic/Area for Discussion
“Monetary Aggregate ”
Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.
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1. For acquiring the relevant knowledge, do not rely only on handouts but watch the course video lectures, which can be downloaded for free from Online VU Lectures Videos, and also use other reference books.
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Discussion Question
Money Aggregate or money supply plays a crucial role in any economy, which not only counts the money supply at specific time period but also useful in taking different economic decisions. Definitions of different money aggregate are some how loosely defined but all the economists differentiate and classify M1, M2 & M3 on the single accepted base.
Required
Sr.
Question
Answer (Write keywords only)
a) What is the main characteristics that distinguish the different money aggregate definitions?
b) Which money aggregate definition is mostly used in economic decision around the world?
c) Justify answer given against part-b.
(provide only one reason)
SOLUTION:
1.What is the main characteristic that distinguishes the different money aggregate definitions?
Solution:
The main characteristic that distinguishes the different money aggregate definitions is the Liquidity.
2.Which money aggregate definition is mostly used in economic decision around the world?
:::::::::::::::::::::::::::::::::
Solution:
M2 is used in economic decisions.
3. Justify answer given against part-b.
(provide only one reason)
:::::::::::::::::::::::::::::::::::::::::::
Solution:
Economists use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions. M2 is a key economic indicator used to forecast inflation .
1) liquidity
2) M2
3) M2 is a key economic indicator used in the forcasting
:::::::::::::::::::::::::::::
Solution
A=These aggregates differ
with regard to the
degree of moneyness of
the assets included
B=M2
C=M2 is the most
commonly quoted
monetary aggregate
since its movements are
most closely related
to interest rate and
economic growth.
::::::::::::::::::::::::::::::::::::::::
Ques. # Answer
(a) Degree of liquidity
(b) M2 is mostly used in economic decision around the world because It includes all of M1, the most liquid assets, and a collection of additional assets that are slightly less liquid. These additional assets include savings accounts, money market deposit accounts, small time deposits (less than $100,000) (these would include certificates of deposits) and retail money market mutual funds.
© M2 is important because economic research has shown that the M2 definition often most closely correlates with the price level and economic activity.
SOLUTION:
1.What is the main characteristic that distinguishes the different money aggregate definitions?
Solution:
The main characteristic that distinguishes the different money aggregate definitions is the Liquidity.
2.Which money aggregate definition is mostly used in economic decision around the world?
:::::::::::::::::::::::::::::::::
Solution:
M2 is used in economic decisions.
3. Justify answer given against part-b.
(provide only one reason)
:::::::::::::::::::::::::::::::::::::::::::
Solution:
Economists use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions. M2 is a key economic indicator used to forecast inflation .
1) liquidity
2) M2
3) M2 is a key economic indicator used in the forcasting
:::::::::::::::::::::::::::::
Solution
A=These aggregates differ
with regard to the
degree of moneyness of
the assets included
B=M2
C=M2 is the most
commonly quoted
monetary aggregate
since its movements are
most closely related
to interest rate and
economic growth.
::::::::::::::::::::::::::::::::::::::::
Ques. # Answer
(a) Degree of liquidity
(b) M2 is mostly used in economic decision around the world because It includes all of M1, the most liquid assets, and a collection of additional assets that are slightly less liquid. These additional assets include savings accounts, money market deposit accounts, small time deposits (less than $100,000) (these would include certificates of deposits) and retail money market mutual funds.
© M2 is important because economic research has shown that the M2 definition often most closely correlates with the price level and economic activity.
