Chapter 24: Problem 5

M1 refers to a. the most narrowly defined money supply. b. currency held by the public plus checking account balances and traveler's checks. c. the smallest dollar amount of the money supply definitions. d. all of the above.

Short Answer

Expert verified

The short answer is: M1 refers to \(b\) currency held by the public plus checking account balances and traveler's checks. This definition accurately describes the components of M1, which focuses on the most liquid forms of money in the economy.

Step by step solution

Option a: the most narrowly defined money supply.

M1 is considered the most narrow or basic definition of the money supply. This option is accurate as M1 includes the most liquid, readily available forms of money.

Option b: currency held by the public plus checking account balances and traveler's checks.

This option accurately describes the components of M1. M1 includes currency held by the public (physical cash like coins and bills), checking account balances in banks, and traveler's checks since they can be easily and quickly converted to cash.

Option c: the smallest dollar amount of the money supply definitions.

Although M1 is a narrow definition of money supply, it doesn't necessarily imply that the dollar amount of M1 will be the smallest among all money supply definitions. This option might be misleading and doesn't clearly define M1.

Option d: all of the above.

Since option c is not an accurate description of M1, option d cannot be the correct answer as it includes all the options.

Conclusion

The correct answer is option b, which defines M1 as "currency held by the public plus checking account balances and traveler's checks." This definition accurately describes the components of M1 and highlights its focus on the most liquid forms of money in the economy.