BANKING AFFAIRS

Detailed explanation-1: -Money is measured with several definitions: M1 includes currency and money in checking accounts (demand deposits). Traveler’s checks are also a component of M1, but are declining in use. M2 includes all of M1, plus savings deposits, time deposits like certificates of deposit, and money market funds.

Detailed explanation-2: -What Is M1? M1 is the money supply that is composed of currency, demand deposits, other liquid deposits-which includes savings deposits. M1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash.

Detailed explanation-3: -M1 includes those assets that are the most liquid such as cash, checkable (demand) deposits, and traveler’s checks. M2 includes M1 plus some less liquid (but still fairly liquid) assets, including savings and time deposits, certificates of deposit, and money market funds.