ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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.

Detailed explanation-2: -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-3: -The correct answer is option B) Savings bonds. Always remember that everything in M1 plus the following is included in M2. Savings bond are not part of the monetary aggregate.

Detailed explanation-4: -M1 money is a country’s basic money supply that’s used as a medium of exchange. M1 includes demand deposits and checking accounts, which are the most commonly used exchange mediums through the use of debit cards and ATMs. Of all the components of the money supply, M1 is defined the most narrowly.