ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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M1
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M2
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M3
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None of the above
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Detailed explanation-1: -M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100, 000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (2) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs.
Detailed explanation-2: -Because M1 is so narrowly defined, very few components are classified as M1. The broader classification, M2, also includes savings account deposits, small-time deposits, and retail money market accounts.
Detailed explanation-3: -M1 includes money in circulation plus checkable deposits in banks. M2 includes M1 plus savings deposits (less than $100, 000) and money market mutual funds. M3 includes M2 plus large time deposits in banks.
Detailed explanation-4: -Therefore, transaction deposits are recorded in the M1 measure of money supply. M1 is calculated as: M1 = Currency + Coins + Checkable deposits(transaction deposits) + Traveler’s checks.