. The most commonly used measure of the money supply (M1) consists

of a term (Currency) that is directly controlled by policy and another

term that is influenced by both policy and economic activity (Balances

on Debit Cards). Given this and a general rule that the Fed wants to

increase money supply during a downturn, can you come up with at

least reason, each, for why money supply might be either procyclical

or countercyclical? If instead of money (M1), we want to look at the

supply of all highly liquid assets, how should the above tradeoff change?

Note: if an asset becomes highly liquid over time, than we are only

counting it in our measure for those periods in which it is highly liquid.

A good answer explains intuitively what it means for an asset to be

liquid and why the liquidity of entire classes of assets may change during

downturns. Note also, in our context, for an asset to be highly liquid

it must be sellable in a matter of a couple of days at full price. Why

might some assets be more liquid during different parts of the business

cycle than during other parts?