Quiz 29 :
The Influence of Monetary and Fiscal Policy on Aggregate Demand
Money supply: Money supply refers to the total value of money, that is, circulation of money in an economy during a particular period of time.Measures of money supply: The two important measures of money supply are M1 and M2. M1 money supply: M1 includes currency in circulation and savings with banks and other savings institutions (cheque deposits and transfer cheques). M2 money supply: M2 includes total value of M1, time deposits, savings deposits, money market mutual funds, and other near money.
Federal Reserve notes: Federal Reserve notes refer to the dollar bills, a form of paper currency used by the U.S. for circulation. It is a kind of legal tender in the U.S. Around two-thirds of Federal reserves are in circulation in foreign countries. Since the U.S. money is in circulation in foreign countries, they issue the counterfeit U.S. money or fake bills. This would lead to difficulty in monitoring and controlling the money supply. On the other hand, the U.S. can sell their $100 to the foreign country for $100 worth of goods and services, which will cost them lower printing charge.
Supernote Supernote is also known as superdollar; it is a high-quality counterfeit hundred dollar bill made by unknown organizations and foreign country government. Reason for redesigning the hundred dollar bill: U.S. government opposed the hundred dollar bill which was in circulation throughout the world. The worldwide circulation was because of likeliness of U.S. dollar, which lead to a reduction in the value of money and increase in the price level (inflation), increase in money supply, and decrease in acceptance of paper money. U.S. issued its currency to foreign countries as an interest-free loan in return of goods and services. Foreign countries accept the U.S. currency to avoid the inflation impact on their currency. If the U.S money is counterfeit, then people in the foreign country may hesitate to accept the dollar, which would reduce the store of value of currency. This will make the foreign countries to use other foreign country currency, such as euro and so on for the transaction purpose. Hence, to avoid the counterfeit money, U.S. redesigned the money after a particular period of time.