M1 differs from M2 because ________.
A)M1 is less liquid than M2
B)M1 includes demand deposits and M2 does not
C)M1 includes only the most liquid forms of money and M2 includes all of M1 and some less liquid items
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

M1 includes only the most liquid forms of money, such as physical currency and demand deposits, while M2 includes all of M1 and some less liquid items, such as savings deposits and money market mutual funds. Therefore, option C is correct. Option A is incorrect because M1 is more liquid than M2 as it includes assets that are more easily accessible, such as demand deposits. Option B is incorrect because M2 includes demand deposits along with other assets, such as savings deposits and small time deposits. Option D is also incorrect because M1 is more liquid, and M2 includes demand deposits.

M1 Differs from M2 Because ________