In defining the money supply (M1), economists exclude savings deposits because
A) the purchasing power of savings deposits is much less stable than that of checkable deposits and currency.
B) savings deposits are a form of investment and, thus, a better store of value than money.
C) savings deposits are liabilities of commercial banks, whereas checkable deposits are assets of the banks.
D) savings deposits are not generally used as a means of payment.

Question

Quizplus · Accepted Answer

Economists exclude savings deposits from the money supply (M1) because they are not generally used as a means of payment. M1 includes only those assets that can be readily used to make payments, and savings deposits typically have limitations on withdrawals and require some amount of time to convert to usable funds.

In Defining the Money Supply (M1), Economists Exclude Savings Deposits