The Supply of Money: M1, M2, M3
Learning objectives:
1. Grasp the money supply concept
Differentiate between a demand deposit and time deposit
Study the lexicon of public and personal finance
Study and Learn the Words:
| English | English equivalents | Romanian | Russian |
| money supply | ofertă monetară | предложение денег | |
| demand deposit | deposit la vedere | вклад до востребования, бессрочный вклад | |
| checking account | cont curent | текущий счёт | |
| on demand | la cerere | по требованию | |
| to withdraw money from an account | a retrage bani de pe cont | снимать деньги со счёта | |
| automated teller machine (ATM) | cash dispenser | bancomat | банкомат |
| time deposit | deposit la termen | срочный вклад | |
| near-monies | aproape bani | почти деньги | |
| securities (n) | hîrtii de valoare | ценные бумаги | |
| government bonds | obligaţiuni de stat | государственные облигации | |
| surrender value | suma de bani care se înapoiază persoanei în caz dacă ea a renunţat la poliţa de asigurare | сумма, возвращаемая лицу, отказавшемуся от страхового полиса | |
| measure (M) | agregat monetar | денежный агрегат | |
| interest-bearing (adj) | which brings interest |
How much money is there in the United States? Before we can answer that question, we need to redefine a couple of concepts:
A demand depositis an amount that is on deposit in a checking account. It is called a demand deposit because it can be claimed immediately—on demand—by presenting a properly made-out check, withdrawing cash from an automated teller machine, or by transferring money between accounts.
A time depositis an amount that is on deposit in an interest-bearing savings account. Savings institutions generally permit immediate withdrawal of money from savings accounts. However, they can require written notice prior to withdrawal. The time between notice and withdrawal is what leads to the name time deposits.
Time deposits are not immediately available to their owners, but they can be converted to cash easily. For this reason, they are called near-monies. Other near-monies include short-term government securities, government bonds, and the cash surrender values of insurance policies.
Money Supply is the total amount of money that exists in the economy of a country at a particular time.
The M1 supply of moneyconsists only of currency and demand deposits. (It is thus based on a narrow definition of money.) By law, currency must be accepted as payment for products and resources. Checks are accepted as payment because they are convenient, convertible to cash, and generally safe.
The M2 supply of moneyconsists of M1 (currency and demand deposits) plus certain specific securities and small-denomination time deposits. Another common definition of money — M3— consists of M1 and M2 plus large time deposits of $100,000 or more. The definitions of money that include the M2 and M3 supplies are based on the assumption that time deposits are easily converted to cash for spending.
So, there are at least three measures of the supply of money. (Actually, there are other measures as well, which may be broader or narrower than M1, M2, and M3.) So the answer to our original question is that the amount of money in the United States depends very much on how we measure it.
I. COMPREHENSION
A) Mark the statements with TRUE or FALSE:
1. The amount of money that exists in the economy of a country depends on how the money is measured.
2. A time deposit is an amount that is on deposit in a checking account.
3. Demand deposit is money that you have on your credit card.
4. Time deposits are also called near-monies because they can be easily converted into cash.
5. There are only 3 measures of the supply of money.
6. The interest on money in a checking account is lower than the interest on money in a savings account.
B) Complete the following formulae:
M1 =
M2 =
M3 =
II. Study the text and be ready to comment on it:
PERSONAL FINANCE: Employees may receive the money they have earned as weekly wages in cash (if they are blue-collars), or as monthly salary in a current account (if they are professionals). In the latter case, the current account (U.S. checking account) is where they pay in their earnings and from where they withdraw money to pay their everyday bills. Holders can withdraw their money with no restrictions, but they receive little interest. The bank sends them a bank statement telling them how much money is in their account. They can also give an instruction to the bank to pay fixed sums of money to certain people at stated times by a standing order. Generally, people avoid having an overdraft because in the end they will pay a lot of interest.
People may also save up money. They open a savings account where they deposit any extra money that they have and only take it out when they intend to spend it on something special. When they invest money in a deposit account (U.S. time or notice account), the customers receive a high rate of interest but withdrawals require 90 days’ notice. If they want to buy their own house, which is a big investment, they may take a bank loan for which they must leave a pledge. If the bank grants them this loan, they have a mortgage.
When you purchase in a shop, you may pay in cash or by credit card. In some shops it is possible not to pay outright, but on credit. If you buy in bulk you may be offered a discount. With such goods as cars, refrigerators or furniture, you may pay the full amount or you may pay in installments.
PUBLIC FINANCE: People, the disadvantaged ones in particular, may receive some money from the government as well, as a form of social security. For instance, the government pays out pensions, unemployment benefits, disability allowances, child allowance, and grants and scholarships to help students pay for studying.
In order to be able to redistribute some money, the government has to form the budget first and cover its expenses according to its fiscal policy. The government levies the money it needs from citizens through various taxes. Income tax is the tax collected on individuals’ wages and salaries. Inheritance tax is levied on what people inherit from others as a legacy.
III. Which words in the text given in bold are defined below? Give their translation:
1. money which is in the form of coins and banknotes _________________
2. an amount of money you receive weekly in return for labour _______________
3. extra percentage paid on a loan _______________________
4. a fixed amount which is paid monthly to workers of higher rank _____________________
5. the amount of money borrowed from a bank greater than that which is in your account _________________________
6. loan to purchase property, used as security for this loan ______________________
7. a piece of paper that shows how much you owe sb for goods and services _____________
8. a guarantee for a loan ____________________________________________
9. an account with a higher rate of interest but requiring notification in advance for withdrawing the funds ________________________
10. an account with low interest but with no restrictions for withdrawal ________________
11. money paid by the state to a person when he/she retires _____________________
12. money given for education ______________________
13. money paid to people that are made redundant ______________________
14. money paid to people with a handicap ________________________
15. money received from someone in his/her will ___________________________
IV. Find in the text from exercise II the English equivalents for the following:
1. extras de cont/выписка со счёта;
2. dispoziţie de plată/инструкция об уплате;
3. suma trasă din cont fără acoperire/превышение кредита;
4. a plăti în numerar/платить наличными;
5. a plăti în rate/платить в рассрочку;
6. a vinde pe credit/продавать в кредит;
7. a plăti pe loc/оплатить сразу;
8. a cumpăra în vrac/покупать в большом количестве.
V. Group the following words under the headings:
Salary, bill, mortgage, debt, tax, fare, fine, bonus, fee, dividend, instalment, legacy, rent, premium, subsidy, deposit, royalties
.
| MONEY TO RECEIVE | MONEY TO PAY |
VI. Fill in the blanks with some of the words from the left column:
1. All the workers in our firm get a Christmas _____________ of $200.
2. Farmers are waiting for the new _________________ to help them grow cereals.
3. As her book was a best-seller, she got substancial ______________________.
4. After their uncle’s death they each received a _______________ of $25000.
5. The _________________ the shareholders received were quite significant since their company fared well last year.
VII. Fill in the blanks with some words from the right column:
1. He paid a high ______________ for his insurance policy against the loss of his voice.
2. We made a ______________ of 25% to be sure that the shop will not sell the furniture we liked so much.
3. How much is the ______________ from the airport to the Hilton Hotel?
4. You have to pay a ______________ for breaking the speed limit.
5. I bought a fridge, which I have to pay back in six monthly ________________ of $100 each.
VIII. WORD STUDY
The word cash is uncountable: How much cash do you have on you?
Choose the correct definition for the following vocabulary items that are formed with the word cash.
1. cash flow is
a) the conversion rate between currencies;
b) money which is immediately available;
c) movement of money into and out of business.
2. petty cash is
a) small denomination coins;
b) money held in a business to cover small expenses;
c) pocket money given to children.
3. cash dispenser is
a) someone who spends money;
b) machine in or outside a bank from which you can get money with a card;
c) device used to sort out money.
4. cash register is
a) machine used in shops to record the money;
b) a special book where you keep the record of money coming in and getting out;
c) person who records money in a bank.
5. cash-and-carry is
a) method to pay for the transport of goods;
b) large shop where goods are paid at cheaper prices and removed by customers;
c) money you receive for delivering the goods.
6. cash cow is
a) animal bred to be sold;
b) part of business that brings enough profits;
c) someone you can cheat to get undue money.
7. cash discount is
a) reduction in a price if you pay immediately;
b) reduction of the sum of money you owe;
c) reduction in a price if you buy goods in bulk.
8. cash desk is
a) a table in which you keep money;
b) a television company office that deals with monetary issues;
c) place in a shop where you pay for goods that you have bought.
The Banking Industry
Learning objectives: