M1 and M2 are two definitions of the money supply.

Determine if the items listed are included in the money supply under each of these definitions and place them in the appropriate category.

Gold, Traveler's check, Balance in savings accounts, Money market account balance, credit cards, common stock, certificates of deposit, currency, balance in checking accounts.

a) M1 only

b) M2 only

c) M1 and M2

d) Neither M1 or M2.

Please refer to Explanation

Explanation:

M1 is the narrowest definition of money supply. It refers to the most liquid or instruments and includes actual currency as well as money in checking accounts.

M2 is the next type of of money. It includes EVERYTHING in M1 and then also includes savings deposits, time deposits, and money market funds.

Now,

Classifying the above will go as,

Gold - Neither M1 or M2

Traveler's check - M1 and M2

Balance in savings accounts - M2 only

Money market account balance - M2 only

Credit cards - Neither M1 or M2

Common stock - Neither M1 or M2

Certificates of deposit - M2 only

Currency - M1 and M2

Balance in Checking accounts - M1 and M2

It is worthy of note that there is no M1 only. This is because as stated in the definition, all M1s are in M2.

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