Chapter 23, Problem 2CYU

To determine

The reason for not including Certificates of deposits under M1.

Explanation of Solution

M1 includes most liquid assets such as cash, traveler’s check, checkable deposits, and the most liquid assets whereas M2 includes the less liquid assets that can be converted into cash easily. M2 includes near-money, time deposits, saving deposits, etc.

M2 also includes small denomination certificates of deposits as they can be converted into cash easily. They are not included in M1 as it includes only most liquid assets which are cash or cash equivalents.

Economics Concept Introduction

Money: Money is the medium of exchange through which goods and services can be traded. It can perform three main functions i.e. medium of exchange, store of value and unit of account.