Homework 1 Essay

Submitted By Nikitarus032586
Words: 371
Pages: 2

GRAPH 1 : Monetary Base (Source: St Louis Federal Reserve Bank FRED)

Monetary Base – the sum of the Fed’s monetary liabilities (currency in circulation and reserves) and the U.S. Treasury’s monetary liabilities (Treasury currency in circulation, primarily coins). (Mishkin, 396)

There has been a steady insignificant increase (practically absent) in the size of monetary base over the period of 2004-2008. However, during the mid of recession (indicated by the shaded area on the graph) there was a dramatic increase - the size of monetary base practically doubled (from $800000 to about $1700000). Since then it has continued to grow with sharp increases in 2011 and 2013 years.

GRAPH 2 : Monetary Base and M1 Money Supply (Source: St Louis Federal Reserve Bank FRED)

The size (amount) of monetary base and M1 money supply stayed more or less constant over the period of 2004-2008. However, during the mid of recession (indicated by the shaded area on the graph) there was a dramatic increase in the size of monetary base (practically doubled), as well as significant increase in M1 money supply (although not as sharp). The graph indicates, that since then the size of both monetary base and a money supply have continued to increase. The difference may indicate that while the drastic increase in the monetary base also boosts the available money supply, the effects seemed to be minimized by banks building up excess reserves (ER), and reduced borrowing…