Which of the following is NOT included in the measure M1
The Correct Answer and Explanation is:
M1 is a measure of the money supply in an economy, specifically indicating the most liquid forms of money. It includes:
- Currency in circulation: Physical money, such as coins and paper bills, that is used for transactions.
- Demand deposits: Money in checking accounts, which can be withdrawn on demand and are used for making payments.
- Traveler’s checks: Although not as commonly used today, these are also considered part of M1.
However, savings deposits are NOT included in M1. These are considered part of a broader money supply measure, M2, which includes M1 and other types of money, such as savings accounts, money market accounts, and small time deposits. Savings deposits are less liquid compared to the items in M1, as they usually require a withdrawal process that isn’t immediate or as convenient as a demand deposit.
To summarize, while M1 focuses on the most easily accessible forms of money (like cash and checking account balances), savings deposits are part of M2, which includes less liquid assets that are still considered money but aren’t immediately spendable in day-to-day transactions. Therefore, savings deposits do not count as part of M1.
