The basic distinction between M1 and M2 is that
A) M2 excludes all checkable deposits.
B) M1 is the money supply broadly defined to include large certificates of deposit.
C) M2 is the money supply expressed in current dollars, whereas M1 is expressed in constant dollars.
D) M1 includes credit card balances on bank-issued credit cards.
E) M2 equals M1 plus savings, small time deposits, money market mutual fund balances, and money market deposit accounts.

Question

Quizplus · Accepted Answer

M1 includes only the most liquid forms of money, such as physical currency, traveler's checks, demand deposits, and other checkable deposits. M2 includes everything in M1, but also adds in other forms of savings, such as small time deposits, money market mutual fund balances, and money market deposit accounts. Therefore, E is the best choice as it accurately describes the distinction between M1 and M2.

The Basic Distinction Between M1 and M2 Is That