M₁ and M₂ are both measures of
A) demand deposits.
B) gross domestic product.
C) reserve requirement levels.
D) the supply of money.
E) inflation.

Question

Quizplus · Accepted Answer

Both measures, M₁ and M₂, are related to the supply of money in the economy. M₁ includes the most liquid forms of money such as cash, checking accounts, and traveler's checks, while M₂ includes M₁ plus less liquid assets such as savings accounts, money market funds, and certificates of deposit. Therefore, both measures are indicators of the overall supply of money in the economy.

M₁ and M₂ Are Both Measures of