The measure of money supply that includes the most liquid assets is:Question 6Answera.M1b.M2c.M3d.M4
Question
The measure of money supply that includes the most liquid assets is:
Question 6
Answer options:
- a. M1
- b. M2
- c. M3
- d. M4
Solution
The measure of money supply that includes the most liquid assets is M1.
Here's why:
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The money supply is categorized into four buckets: M0, M1, M2, and M3 (M4 is not universally recognized).
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M0 and M1, also known as narrow money, include coins and notes in circulation and other assets that are easily convertible into cash.
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M1 specifically includes the most liquid assets, which are assets that can be converted into cash quickly. These include currency (coins and notes) in circulation and checkable deposits (i.e., checking accounts).
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M2 includes M1 plus short-term time deposits in banks and 24-hour money market funds.
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M3 includes M2 plus longer-term time deposits and money market funds with more than 24-hour maturity.
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The broader the category (i.e., the larger the number after the 'M'), the less liquid assets it includes.
So, the answer to your question is a. M1, as it includes the most liquid assets.
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