Exploring M0, M1, and M2 in the Monetary System

The video explores the different ways of measuring money in circulation, starting with the US Federal Reserve's role in printing and circulating money through securities. It explains how money is deposited in banks, the concept of fractional reserve banking, and the different forms of money, including M0, M1, and M2. The video also discusses how these forms of money are used to facilitate transactions and the broader definitions of money supply.

What is the primary role of the Central Bank in the context of money circulation?

• To set the price of goods and services

• To print and introduce money into the economy

• To lend money to individuals directly

• To collect taxes from citizens

What type of assets does the Central Bank typically purchase to introduce money into circulation?

• Cryptocurrencies

• Government treasuries and other liquid securities

• Real estate properties

• Stocks in technology companies

What is the significance of liquid assets for the Central Bank?

• They are used to pay government salaries

• They are used to back the value of the currency

• They can be easily bought and sold in large quantities

• They represent ownership in companies

Why are savings accounts considered to offer more interest than checking accounts?

• Because banks do not need to keep reserves against them

• Because they have higher risk

• Because they are insured by the government

• Because the money is locked for a fixed term

What is the fractional reserve system?

• A system where banks can lend out a fraction of deposits

• A system where banks operate without any reserves

• A system where banks keep all deposits in reserve

• A system where banks invest in government securities only

Why might someone choose to deposit money into a savings account rather than a checking account?

• For higher security

• For the ability to write unlimited checks

• For a higher interest rate

• For immediate access to funds

What role do banks play in the money supply according to the fractional reserve system?

• They decrease the money supply by holding deposits

• They increase the money supply through lending

• They have no impact on the money supply

• They only transfer money between accounts without creating money

What happens to the original $4 printed by the Central Bank in the economy?

• It remains in circulation alongside other forms of money

• It is destroyed after lending

• It is converted into digital currency

• It is returned to the Central Bank

What does M1 include?

• Savings accounts and money market accounts

• Only physical currency in circulation

• Physical currency and checkable deposits

• Long-term investments

How can M2 be described?

• It includes only digital currencies

• It includes M1 and assets easily convertible to cash

• It represents the total wealth of a nation

• It is the total of all physical currency only