Reference no: EM131062756

With the economy in recession and retail sales down, one product that is experiencing record sales is the home safe. The financial crisis has created a loss in consumer confidence, and frightened consumers have generated a boom in the home safe business. In this sluggish economy, some people have lost faith in banks and are pulling cash out of their accounts. Others are avoiding the stock market and are choosing, instead, to invest in precious metals. Because there is a need for a place to safely store cash, gold, silver and other valuables, many are investing in high quality safes for security. Indicative of this growing trend, the Traum Safe Company in New York is having their best year ever, selling custom safes with prices up to and even exceeding $250,000.

•What is consumer confidence and what role does it play in the economy? What effect, if any, would consumers pulling money out of their checking accounts and putting it into home safes have on investment, interest rates, and GDP? Would this be good or bad for the economy?

•What are M1 and M2? What impact would this action (pulling money from checking accounts) have on the size of the M1 and M2 components of the money supply?