Statement I: A strong case can be made to designate M2 as our basic money supply,rather than M1.
Statement II: The Federal Reserve watches M2 more closely than it watches M1.

Question

Quizplus · Accepted Answer

Both statements are true.

M2, which includes M1 plus savings deposits, time deposits, and other less-liquid assets, is a broader measure of money supply than M1. Therefore, M2 provides a more comprehensive overview of the money supply in the economy.

The Federal Reserve watches M2 more closely than M1 because it considers M2 to be a better indicator of overall economic activity and inflation. The central bank uses M2 as one of its key tools to implement monetary policy.

Statement I: a Strong Case Can Be Made to Designate