Chapter 14.3, Problem 4R

To determine

To evaluate: The difference between M1 and M 2.

Explanation of Solution

M1 is the smallest concept of the supply of money; it consists of money that can be immediately expended and against which controls can be published. It is about the supply of physical resources. It may include any kind of the following item like the cash, coins, demand deposits, traveler checks, and even account checks. It’s most important attribute to understand is the converting to physical currency from accounts and assets. Also known as liquidity, it easily becomes something that can keep in pocket. As M2 might be it's not "near money."

M2 is the wider concept of money supply; it includes all M1 plus near-money such as savings deposits, small denomination time deposits, bank accounts for the money market, and mutual fund balances for the retail money market. Money mutual funds and timely deposits that are of less liquid and are not readily transferable to real money can be known as something. It is never actually used as payment method, that's all done in M1. It is crucial to consider though, because it can also act as a legal way to invest, raise income, and even pay off loans, bills, and taxes.

Economics Concept Introduction

Introduction: Macroeconomics, money supply is the sum of capital available at a given time in an economy. There are many ways to define "cash" but basic measurements typically include circulating currency and deposits on demand.