For each of the following assets, indicate which of the monetary aggregates (M1 and M2)includes them:a. Currencyb. Money market mutual fundsc. Small-denomination time depositsd. Checkable deposits
Question
For each of the following assets, indicate which of the monetary aggregates (M1 and M2)includes them:a. Currencyb. Money market mutual fundsc. Small-denomination time depositsd. Checkable deposits
Solution
a. Currency: This is included in both M1 and M2 monetary aggregates. M1 is the most liquid form of money and includes physical currency in circulation.
b. Money market mutual funds: These are included in M2 but not in M1. M2 includes all of M1 plus short-term time deposits in banks and 24-hour money market funds.
c. Small-denomination time deposits: These are included in M2 but not in M1. M2 includes all of M1 plus savings deposits, small-denomination time deposits (deposits in amounts of less than $100,000), and money market deposit accounts for individuals.
d. Checkable deposits: These are included in both M1 and M2. M1 includes currency and checkable deposits (demand deposits, NOW accounts, and other checkable deposits).
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