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Suppose that in a certain month, the year-over-year growth rate of M1 in the United States fell to 5.6%, while the growth rate of M2 rose to 10.2%. A few years later, the year-over-year growth rate of the M1 money supply was 6.3%, while the growth rate of the M2 money supply was about 8.5%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2? (Select all that apply.) ☐ A. The United States economy must be experiencing hyperinflation. ☐ B. In this period, different courses of monetary policy action might be deemed appropriate depending on what measure of money is used. ☐ C. Americans must be holding more currency outside of banks. ☐ D. The growth rates of M1 and M2 moved in opposite directions. ☐ E. The Federal Reserve's methods of measuring money supply growth are most likely flawed in some way, since it is nearly impossible for both of these changes to happen at the same time.

Suppose that in a certain month, the year-over-year growth rate of M1 in the United States fell to 5.6%, while the growth rate of M2 rose to 10.2%. A few years later, the year-over-year growth rate of the M1 money supply was 6.3%, while the growth rate of the M2 money supply was about 8.5%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2? (Select all that apply.) ☐ A. The United States economy must be experiencing hyperinflation. ☐ B. In this period, different courses of monetary policy action might be deemed appropriate depending on what measure of money is used. ☐ C. Americans must be holding more currency outside of banks. ☐ D. The growth rates of M1 and M2 moved in opposite directions. ☐ E. The Federal Reserve's methods of measuring money supply growth are most likely flawed in some way, since it is nearly impossible for both of these changes to happen at the same time.

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 18CQ
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Suppose that in a certain month, the year-over-year growth rate of M1 in the United States fell to 5.6%, while the growth rate of M2 rose to 10.2%. A few years later, the year-over-year growth rate of the M1 money supply was 6.3%, while the growth rate of the M2 money supply was about 8.5%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2? (Select all that apply.) A. The United States economy must be experiencing hyperinflation. ☐ B. In this period, different courses of monetary policy action might be deemed appropriate depending on what measure of money is used. ☐ C. Americans must be holding more currency outside of banks. ☐ D. The growth rates of M1 and M2 moved in opposite directions. ☐ E. The Federal Reserve's methods of measuring money supply growth are most likely flawed in some way, since it is nearly impossible for both of these changes to happen at the same time.
Transcribed Image Text:Suppose that in a certain month, the year-over-year growth rate of M1 in the United States fell to 5.6%, while the growth rate of M2 rose to 10.2%. A few years later, the year-over-year growth rate of the M1 money supply was 6.3%, while the growth rate of the M2 money supply was about 8.5%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2? (Select all that apply.) A. The United States economy must be experiencing hyperinflation. ☐ B. In this period, different courses of monetary policy action might be deemed appropriate depending on what measure of money is used. ☐ C. Americans must be holding more currency outside of banks. ☐ D. The growth rates of M1 and M2 moved in opposite directions. ☐ E. The Federal Reserve's methods of measuring money supply growth are most likely flawed in some way, since it is nearly impossible for both of these changes to happen at the same time.
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