When using the money supply figures to measure the direction of monetary policy during the last several decades, it is better to look at changes in the M2 money supply rather than M1 because
A)the increase in popularity of interest-earning checking accounts in the 1980s distorted the M2 money supply but not the M1 money supply.
B)the increase in popularity of interest-earning checking accounts in the 1980s distorted the M1 money supply but not the M2 money supply.
C)the decrease in popularity of interest-earning checking accounts in the 1980s distorted the M1 money supply but not the M2 money supply.
D)the decrease in popularity of interest-earning checking accounts in the 1980s distorted the M2 money supply but not the M1 money supply.

Question

Quizplus · Accepted Answer

The increase in popularity of interest-earning checking accounts in the 1980s affected M1, which includes only liquid assets, while M2 includes M1 plus savings accounts and other near monies, making it a more stable measure.

When Using the Money Supply Figures to Measure the Direction