A reason that economists keep an eye on both M2 and M1 is because
A) M2 is more accurate than M1.
B) both fluctuate widely and frequently in total dollar value.
C) money market accounts are sometimes used like checking accounts and sometimes like savings accounts.
D) during a recession, M1 is meaningless.

Question

Quizplus · Accepted Answer

Money market accounts are part of M2, and they can be used like both checking accounts and savings accounts. Therefore, tracking both M1 and M2 gives a more complete picture of the money supply and how it is being used in the economy. Option A is incorrect because M2 is not necessarily more accurate than M1; it is simply a broader measure of the money supply. Option B is incorrect because while both M1 and M2 do fluctuate, this alone is not a reason for tracking both. Option D is incorrect because M1 is still a useful indicator of the money supply, even during a recession.

A Reason That Economists Keep an Eye on Both M2