Chapter 18, Problem 7P

To determine

Concept Introduction:

M1 Money Supply: It is the tool used to measure the money supply or liquidity of money. M1 is considered as narrow money because it only includes that part of the money which is in the form of cash, demand deposits and travelers’ checks.

M2 Money Supply: It is the tool used to measure the money supply or liquidity of money. M2 is considered as broad money because it includes M1 and addition to it, it also includes savings and time deposits, funds of money market, certificate of deposits.

Money Supply: It refers to that amount of money which is in circulation within the economy at a particular point of time. It includes cash currency and all the liquid assets which can be converted into cash on demand.