Chapter 24: Problem 8

Which of the following is part of the M2 definition of the money supply, but not part of M1? a. Checkable Deposits b. Currency held in banks c. Currency in circulation d. Money market mutual fund shares

Short Answer

Expert verified

The correct answer is option D: Money market mutual fund shares, as they are part of the M2 money supply but not the M1 money supply.

Step by step solution

Option A: Checkable Deposits

Checkable deposits are the accounts in which you may write checks payable on demand. These deposits are a part of both M1 and M2 definitions, as they are considered a liquid form of money. So option A is not the correct answer.

Option B: Currency held in banks

Currency held in banks is the amount of cash kept in the banks' vaults. This currency is not in circulation, so it is not considered a part of either M1 or M2 money supply. Therefore, option B is not the correct answer.

Option C: Currency in circulation

Currency in circulation refers to all physical currency - i.e., banknotes and coins - that is out and not held in banks' vaults. This is considered a very liquid form of money and is included in both M1 and M2 definitions. So option C is not the correct answer.

Option D: Money market mutual fund shares

Money market mutual fund shares represent investments in short-term debt securities and are considered less Liquid compared to other components in the M1 definition. They are part of the M2 money supply but not the M1 money supply, and therefore, option D should be the correct answer. So, the correct answer to this question is: Option D: Money market mutual fund shares.

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