In defining money as M1, economists exclude time deposits because:

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	the intrinsic value of time deposits is nil
B	the purchasing power of time deposits is much less stable than that of checkable deposits and currency
C	they are not directly or immediately a medium of exchange
D	. they are not recognized by the Federal government as legal tender

Explanation:

Detailed explanation-1: -In defining money as M1, economists exclude time deposits because: the intrinsic value of time deposits is nil. the purchasing power of time deposits is much less stable than that of checkable deposits and currency. they are not directly or immediately a medium of exchange.

Detailed explanation-2: -M1 measurement of money supply excludes time deposits with banks as it is the most liquid money supply and time deposits are not liquid assets. Therefore, time deposits are not included in M1 measurement of money supply.

Detailed explanation-3: -In defining money as M1, economists exclude time deposits because: They are not directly or immediately a medium of exchange.

Detailed explanation-4: -M1 money supply includes those monies that are very liquid such as cash, checkable (demand) deposits, and traveler’s checks. M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.

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