Which of the following is part of the M1 definition of money supply, but not part of M2?
Currency in circulation.
None of the given answers.
Checkable deposits.
Travelers’ checks.
The correct answer and explanation is :
Correct Answer: None of the given answers.
Explanation:
The money supply is categorized into different measures, primarily M1 and M2, which include various liquid assets.
Understanding M1 and M2:
- M1 is the most liquid form of money and consists of:
- Currency in circulation (physical cash and coins held by the public)
- Checkable deposits (demand deposits in banks that can be accessed using checks or debit cards)
- Traveler’s checks (though they are now less common)
- M2 includes all of M1 and additional near-money assets, which are less liquid but can still be quickly converted into cash. M2 consists of:
- M1 (all components)
- Savings deposits
- Small time deposits (certificates of deposit under $100,000)
- Retail money market mutual funds
Why is “None of the given answers” correct?
- Each option listed—Currency in circulation, Checkable deposits, and Traveler’s checks—is part of M1, but since M2 includes everything in M1, none of these are excluded from M2.
- In other words, all the given answers are in both M1 and M2, meaning there is no option that is in M1 but not in M2.
- If an option like “Large-denomination time deposits” were provided, that could be correct because such deposits are part of M3, not M1 or M2.
Conclusion:
Since all the given options are part of both M1 and M2, the correct answer is “None of the given answers.”
