Why is m2 sometimes a more stable measure of money than m1

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1. Why is M2 sometimes a more stable measure of money than M1? Explain in your own words using the definitions of M1 and M2.

2. Do you agree or disagree with each of the following statements? Explain your answers.

a. When the Treasury of the United States issues bonds and sells them to the public to finance the deficit, the money supply remains unchanged because every dollar of money taken in by the Treasury goes right back into circulation through government spending. This is not true when the Fed sells bonds to the public.

b. The money multiplier depends on the marginal propensity to save.

Reference no: EM131309005

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