The M2 definition of the money supply is based on the concept that
A) M1 is a small number and should be increased in size.
B) many types of deposits can be used as both payments and stores of value.
C) checking deposits are used for payments, and therefore, not part of M1.
D) cash is not used for the majority of payments.

Question

Quizplus · Accepted Answer

The M2 definition of the money supply includes all of the components of M1 (currency, demand deposits, and traveler's checks), but also includes other types of deposits that are used as both payments and stores of value, such as savings deposits, small-denomination time deposits, and balances in retail money market mutual funds. This reflects the reality that many different assets can act as money in different contexts.

The M2 Definition of the Money Supply Is Based on the Concept