Abacus / Games / Liquidity

LIQUIDITY

The Money Supply Simulator

You are the newly appointed Chair of the Federal Reserve. Your mission: manage the nation's money supply to maintain economic stability.

But here's the secret the textbooks don't teach — not all money is created equal.

The Divisia Difference

A dollar in your pocket isn't the same as a dollar locked in a 5-year CD. The old Fed just added them up equally. You'll use Divisia-weighted aggregates to see the TRUE liquidity in the system.

M1
Cash
M2
+ Savings
M3
+ Large CDs
M4
+ T-Bills
Game Settings
Game Length
Difficulty
Starting Scenario
LIQUIDITY
Q1 2024
Turn 1 / 20
A
Money Supply Aggregates ?
Money Supply
M1-M4 measure different types of money. M1 is most liquid (cash you can spend immediately). Higher numbers include less liquid assets like savings and CDs.
M1 (Currency + Checking) ?
M1 - Most Liquid
Physical cash plus checking accounts. This is money people can spend immediately, making it the most responsive to Fed policy.
$4.2T
+2.1%
M2 (+ Savings) ?
M2 - Near Money
M1 plus savings accounts and small CDs. These can be converted to cash quickly but aren't instantly spendable.
$18.7T
+1.8%
M3 (+ Large CDs) ?
M3 - Broad Money
M2 plus large time deposits and institutional money funds. This shows money held by businesses and institutions.
$22.1T
+0.5%
M4 (+ T-Bills) ?
M4 - Broadest
M3 plus Treasury bills and commercial paper. The broadest measure of liquidity in the economy.
$28.4T
-0.3%
S&P 500 Index
4,500
+1.2%
Fed Balance Sheet ?
Balance Sheet
Total assets held by the Fed. QE increases this (buying bonds), QT decreases it (selling bonds). Affects liquidity in the system.
$8.9T
Base
VIX (Volatility) ?
Fear Index
Measures market fear/uncertainty. <15 = Calm, 15-25 = Normal, 25-35 = Elevated, >35 = High fear. Spikes during crises.
15
Normal
Simple Sum
Divisia M4
S&P 500
Simple Sum M4 ?
Simple Sum
Traditional measure that adds all money equally. A dollar in savings counts the same as a dollar in your pocket. Can be misleading!
$28.4T
YoY Growth: +5.2%
Divisia M4 (Weighted) ?
Divisia Index
Weights money by how easily it can be spent. Cash gets full weight, locked CDs get less. Shows TRUE liquidity available to the economy.
$19.8T
YoY Growth: -1.3%
Dual Mandate ?
Fed's Dual Mandate
The Fed must balance TWO conflicting goals: low inflation (~2%) AND low unemployment (~4%). Tightening policy fights inflation but raises unemployment. Loosening helps jobs but risks inflation.
Sweet Spot: ✗
Inflation ?
Inflation Rate
Target: 2%. Rising prices erode purchasing power. Raise rates to fight high inflation (but this slows the economy).
2.4%
Target: 2%
INF
UNE
Balanced
Unemployment ?
Unemployment Rate
Target: ~4% (natural rate). Lower rates to stimulate job growth (but this risks inflation). Too low can overheat the economy.
3.8%
Target: 4%
Tight
Loose
💡 Adjust Fed Funds Rate to balance inflation vs. unemployment
GDP Growth 2.5% Target: 2-3%
Financial Stability 85 Target: 80+
Economic News
Q1 2024 You have been appointed as the new Federal Reserve Chair. Markets await your first policy decisions.
Policy Tools ?
Your Controls
These are the main tools you use to control the economy. Adjust rates, set reserve requirements, and run QE/QT programs.
Federal Funds Rate ?
Interest Rates
The rate banks charge each other. Higher = tighter money (fights inflation). Lower = easier money (stimulates growth). Your primary tool!
5.25%
0% 10% 20%
Reserve Requirement ?
Bank Reserves
% of deposits banks must keep (can't lend). Higher = less lending = tighter money. Lower = more lending = more money creation.
10%
0% 10% 20%
QE PROGRAM Inactive
No active program
Money Components ?
Divisia Weights
The number next to each component (0.00-1.00) is its Divisia weight. Cash = 1.0 (full liquidity), while locked CDs have lower weights. This is how Divisia captures TRUE liquidity!
Currency 1.00 $2.3T
Demand Deposits 0.95 $1.9T
Savings Deposits 0.70 $12.4T
Small Time Deposits 0.40 $2.1T
Large Time Deposits 0.25 $1.8T
Money Market Funds 0.20 $1.6T
T-Bills & CP 0.10 $6.3T
Step 1 of 7
Welcome, Chair!
You've just been appointed Federal Reserve Chair. Your job: keep the economy stable.
A

Excellent Stewardship

2.1%
Avg. Inflation
4.2%
Avg. Unemployment
2.4%
Avg. GDP Growth
0
Crises Faced
Your Economic Record