Questions: Money Supply Money Supply Use the information below to answer the question. Liquidity is the relative measure of the ease with which something can be converted into cash. Something that is easily converted into cash is highly liquid, while something that is more difficult to convert into cash is less liquid. M1 is the most liquid category of the money supply; it includes cash, coins, and money in checking accounts. M2 is less liquid than M1; it includes M1 and money in the money market funds. The money market funds mature very quickly, usually within a matter of days. M3 is less liquid than M2; it includes M2 and repurchase agreements (REPO). Which of the following only includes cash, coins, and money in checking accounts? M3 money market funds M1 M2

Money Supply

Money Supply
Use the information below to answer the question.
Liquidity is the relative measure of the ease with which something can be converted into cash. Something that is easily converted into cash is highly liquid, while something that is more difficult to convert into cash is less liquid.

M1 is the most liquid category of the money supply; it includes cash, coins, and money in checking accounts. M2 is less liquid than M1; it includes M1 and money in the money market funds. The money market funds mature very quickly, usually within a matter of days. M3 is less liquid than M2; it includes M2 and repurchase agreements (REPO).

Which of the following only includes cash, coins, and money in checking accounts?

M3
money market funds

M1

M2

Transcript text: Money Supply Money Supply Use the information below to answer the question. Liquidity is the relative measure of the ease with which something can be converted into cash. Something that is easily converted into cash is highly liquid, while something that is more difficult to convert into cash is less liquid. M1 is the most liquid category of the money supply; it includes cash, coins, and money in checking accounts. M2 is less liquid than M1; it includes M1 and money in the money market funds. The money market funds mature very quickly, usually within a matter of days. M3 is less liquid than M2; it includes M2 and repurchase agreements (REPO). Which of the following only includes cash, coins, and money in checking accounts? M3 money market funds M1 M2

Solution

The answer is the third one (M1): M1 only includes cash, coins, and money in checking accounts.

Explanation for each option:

M3: This includes M2 and repurchase agreements (REPO), making it less liquid than M2. It does not only include cash, coins, and money in checking accounts.
Money market funds: These are part of M2, not M1. Money market funds are less liquid than cash, coins, and checking accounts because they involve short-term financial instruments.
M1: This is the correct answer. M1 is the most liquid category of the money supply and includes only cash, coins, and money in checking accounts.
M2: This includes M1 and money market funds, making it less liquid than M1. It does not only include cash, coins, and money in checking accounts.

In summary, M1 is the category that only includes cash, coins, and money in checking accounts, making it the most liquid form of money supply.

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