Narrow (Transactions) Money

One important and closely watched measure of money is narrow or transactions money. denoted by M which consists of items that are actually used for transactions. The following are the components of M.

Coins. MI includes coins not held by banks Paper currency. More significant is paper currency. Most of us know little more about a $1 or $5 bill than that it is inscribed with the picture of an American statesman, that it bears some official signatures, and that each has a numeral showing its face value. Examine a $10 bill or some other . paper bill. You will find that it says “Federal Reserve Note.” But what “backs” our paper currency? Many years ago, paper money was backed by gold or silver. There is no such pretense to day Today all U.S. coins and paper currency are fiat. This term signifies something determined to be money by the government even if it has no value.

Table 25-1 shows the dollar values of the different components of narrow money M.

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