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FRED Data Required To complete this assignment, students will need the following variables from FRED: FRED Variable Concept Mnemonic Description (units) GDP GDP Gross Domestic Product ($billions) M1 M1SL M1 Money Stock ($billions) Currency CURRSL Currency component of M1 ($billions) Demand Deposits DEMDEPSL Demand deposit component of M1 ($billions) M2 M2SL M2 Money Stock ($billions) Federal Funds Effective Rate FEDFUNDS Federal Funds Effective Rate (percent) Discount Rate INTDSRUSM193N Interest Rates, Discount Rate for United States (percent)QUESTION 1 10 points Save Answer What are the key differences between M1 and M2 over time? Use nominal levels of M1 (M1SL) and M2 (M2SL) to construct a graph from 1947-present (use LINE 1, LINE 2, and LINE 3). For LINE 3, calculate the part of M2 that is not in M1 using the formula M2-M1 (that is, the difference between M2 and M1). Using the Format tab, convert all three lines to logarithms. Attach File Browse Local Files QUESTION 2 10 points Save Answer Why is M2 always higher than M1? O Consumers and households prefer M2 to M1 O M2 can be used more places to buy goods and services O M2 includes all of M1 plus other types of deposits and short-term savings O All of the above O None of the above QUESTION 3 10 points Save Answer M1 (LINE 1) is larger than the part of M2 that is not in M1 (LINE 3)? O True O FalseQUESTION 4 10 points Save Answer Which of the following statements best describes the relationship between M1 (LINE 1) and the part of M2 that is not in M1 (LINE 3) O M1 was much larger in 1959 but they were about the same by 2019 They have always been about the same They were about the same in 1959 but M1 was much smallerl by 2019 M1 is always smaller O M1 is always larger QUESTION 5 10 points Save Answer In 2020, the Federal Reserve changed the definitions of M1 and M2. Read the explanation here and write a short paragraph explaining what changed and why. Be sure to relate your explanation to your answer in the previous questions, which show how the part of M2 that is not in M1 has become increasingly important to consumers as money. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial 10pt F V V A V v E E .. . E E X2 X2 TT The + ABC X EXE EX O (? + P 0 WORDS POWERED BY TINYQUESTION 6 10 points Save Answer How have the components of M1 relative to income (GDP) changed over time and why? Use the nominal levels of the components of M1 = currency (CURRSL) + demand deposits (DEMDEPSL) to construct a graph of their ratios to GDP (income) from 1947-present (use LINE 1 and LINE 2). Convert both ratios to a percent as CURRSL DEMDEPSL shown in the following equations: x 100 and x 100. GDP GDP Attach File Browse Local Files QUESTION 7 10 points Save Answer Which component of M1 as a percentage of GDP (income) has varied the most over time? O Neither - both vary about the same O Currency in circulation, or CIC (paper billsotes and coins) O Demand deposits (which are "checking" accounts) QUESTION 8 10 points Save Answer From 1959 until the Financial Crisis started in 2007, households significantly reduced the amount of money they held in checking accounts (from over 20 percent of income to about 2 percent) compared to currency (fairly steady around 5 percent). What factor(s) most likely contributed to the decline in money held in checking accounts? O Interest rates increased a lot for much of that period O Households began to pay for things with other forms of payment like credit cards O Financial market products became more sophisticated and available to more households O Information technology increased dramatically and made it easier to manage holdings of money versus other assets O All of the aboveQUESTION 9 10 points Save Answer Since the COVID-19 Pandemic started in 2020, demand deposits have increased significantly - almost back to where they were in 1959! Which of the following could potentially explain this change? The stock market and other asset prices dropped dramatically so households decided to keep more of their wealth in safer assets like money O Banks started paying much higher interest on checking accounts O The government increased its debt and gave households a lot of extra money intending to help them survive unemployment during the Pandemic O (a) and (b) O (a) and (c) O (b) and (c) QUESTION 10 10 points Save Answer After falling in half from 1947 to the 1970s (around 10 percent to 5 percent), the share of currency in circulation - also called "cash" - has been relatively stable. It's actually been increasing since the Financial Crisis, but this is probably due to the United States shipping more currency to foreign countries who want to hold and use dollars. In any case, many people find the fact that cash hasn't disappeared in the electronic era with a lot of new forms of payment (like prepaid cards, Venmo/Zelle, etc.). What do you think are the most important reasons why cash is still being held and used today? For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial 10pt v EV A v TX E . . . E E X2 X2 IT The + ABC 1 7 9 0 B V X EX: O ? + P 0 WORDS POWERED BY TINYQUESTION 11 10 points Save Answer Use the levels of the effective Fed Funds Rate (FEDFUNDS) and the discount rate (INTDSRUSM193N) to construct a graph of bank interest rates from Jan 1, 1990, to the present (use LINE 1 and LINE 2). Attach File Browse Local Files QUESTION 12 10 points Save Answer The fed funds rate and the discount rate are interest rates banks charge households to borrow money overnight. O True O False QUESTION 13 10 points Save Answer What happened to the discount rate in January 2003 and why? Read this article from the Federal Reserve to find the answer. O The discount rate moved below the fed funds rate because fewer banks wanted to borrow from the Fed anymore O The discount rate became equal to the fed funds rate because the bank lending programs were merged into one O The discount rate moved above the fed funds rate so any sound financial institution could borrow from the Fed and to eliminate the perception banks were being subsidized O All of the above O None of the aboveQUESTION 14 10 points Save Answer What is the most important change in the fed funds rate since the Financial Crisis began in 2007? O It is much lower and has been essentially zero percent (0%) most of the time O It has become much more variable (ups and downs) O It no longer increases shortly before a recession (gray shaded regions) O All of the above O None of the above