ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -M1 and M2 money have several definitions, ranging from narrow to broad. M1 = coins and currency in circulation + checkable (demand) deposit + traveler’s checks. M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.

Detailed explanation-2: -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.

Detailed explanation-3: -M2 is made up of: M1 (Checkable bank deposits, Currency in circulation, and Traveler’s checks).

Detailed explanation-4: -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-5: -M2 is a measure of the money supply that includes cash, checking deposits, and other types of deposits that are readily convertible to cash such as CDs.