Which statement is correct?
A) M2 measures assets primarily used as a medium of exchange.
B) M2 includes M1.
C) M1 includes assets primarily used as a means of savings.
D) The Federal Reserve discontinued reporting on M1 and M2 because they provide little insight into the state of the economy.

Question

Quizplus · Accepted Answer

M2 includes all components of M1 (cash, checking deposits, and traveler's checks) and also includes savings deposits, money market securities, and time deposits under $100,000. So, statement B is correct. Statement A is incorrect because M2 measures assets used as a medium of exchange as well as assets used as a store of value. Statement C is also incorrect because M1 includes assets primarily used as a medium of exchange, not means of savings. Statement D is incorrect because the Federal Reserve still reports on M1 and M2 because they are important components in understanding the money supply and the state of the economy.

Which Statement Is Correct