The distinction between M₁ and M2 is based on

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The distinction between M₁ and M2 is based on liquidity, which is the ease with which an asset can be converted into cash. M₁ includes the most liquid forms of money such as currency, demand deposits, and traveler's checks, while M2 includes slightly less liquid forms such as savings deposits, small time deposits, and retail money market mutual funds. Portability, divisibility, and storability are not the primary factors that differentiate between M₁ and M2.

The Distinction Between M₁ and M2 Is Based on