Question : 11) What assets included in M1? In M2? Is all : 1227837

 

11) What assets are included in M1? In M2? Is all of M1 and M2 money? If some assets of M1 or M2 are not money, why are they included in M1 or M2?

Answer:  M1 is the sum of currency held by individuals and businesses plus checkable deposits owned by individuals and businesses plus traveler’s checks. All the assets in M1 are accepted as means of payment and so all the assets are money. M2 includes all of M1 plus savings deposits, small time deposits, and money market funds. Some components of M2, such as time deposits, are not money because they are not a means of payment. But they are easily convertible into money, which is why they are included in M2.

Topic:  M1, M2

Skill:  Level 1: Definition

Section:  Checkpoint 11.1

Status:  AA

 

12) Explain what is included in M1 and M2. Is all of M1 money? Is all of M2 money?

Answer:  M1 is equal to the sum of currency held by individuals and businesses plus traveler’s checks plus checking deposits owned by individuals and businesses. These assets are all money because they are all a means of payment. M2 is equal to M1 plus saving deposits plus small time deposits plus money market funds. Not all of M2 is money because not all of M2 are a means of payment. In other words, some parts of M2, such as time deposits, cannot be used directly to make a purchase.

Topic:  M1, M2

Skill:  Level 1: Definition

Section:  Checkpoint 11.1

Status:  NAU

 

13) What is larger: M1 or M2? Why?

Answer:  M2 is larger than M1. M2 includes M1 plus additional assets, so M2 must be larger than M1. In June, 2011, M1 was approximately $1,950 billion and M2 was about 5 times larger at approximately $9,100 billion.

Topic:  M1, M2

Skill:  Level 1: Definition

Section:  Checkpoint 11.1

Status:  Revised

 

14) “By definition, all parts of M2 are money.” Is the previous statement correct or not? Explain your answer.

Answer:  The statement is incorrect. Many of the assets in M2 are money. But not all the assets are money. Some of the savings deposits, time deposits, and money market funds are not means of payment and hence are not money. But they are included in M2 because they are easily converted into money.

Topic:  M2

Skill:  Level 1: Definition

Section:  Checkpoint 11.1

Status:  WM

15) If you have assets that include $50 in cash, a checking account with $135, a savings account with $500, and a jar of coins for laundry of $15.75, how much M1 do you have?

Answer:  You have $200.75 of M1, comprised of the $50 in cash, plus the $135 in the checking account, plus the $15.75 jar of coins.

Topic:  M1

Skill:  Level 2: Using definitions

Section:  Checkpoint 11.1

Status:  WM

 

16) If you hold $25 in cash, have $150 in a checking account, and have $250 in a savings account, how much of M2 do you have?

Answer:  All of the assets mentioned are included in M2, so you have $25 + $150 + $250 = $425 of M2.

Topic:  M2

Skill:  Level 2: Using definitions

Section:  Checkpoint 11.1

Status:  WM

 

 

 

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