Which category of money is more liquid M1 or M2?
M1 money supply includes those monies that are very liquid such as cash, checkable (demand) deposits, and traveler's checks. M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.
M2 money is less liquid than M1 money. Liquidity measures how quickly assets can be converted to cash. M1 money includes cash, travelers checks, and checking accounts. M2 money includes certificate of deposit, mutual funds deposits, and saving accounts.
M1 is the money supply that is composed of currency, demand deposits, other liquid deposits—which includes savings deposits. M1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash.
| Mo(Reserve Money) | Currency in circulation + Bankers' deposits with the RBI + 'Other' deposits with the RBI |
|---|---|
| M1 (Narrow Money) | Currency with the public + Deposit money of the public |
| M2 | M1 + Savings deposits with Post office savings banks |
| M3 (Broad Money) | M1+ Time deposits with the banking system |
M1 consists of the most highly liquid assets. That is, M1 includes all forms of assets that are easily exchangeable as payment for goods and services. It consists of coin and currency in circulation, traveler's checks, demand deposits, and other checkable deposits.
Historically, M1 money supply included those monies that are very liquid such as cash, checkable (demand) deposits, and traveler's checks, while M2 money supply included those monies that are less liquid in nature; M2 included M1 plus savings and time deposits, certificates of deposits, and money market funds.
M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds.
Money Supply Measure “M1” M1 consists of the most highly liquid assets. That is, M1 includes all forms of assets that are easily exchangeable as payment for goods and services. It consists of coin and currency in circulation, traveler's checks, demand deposits, and other checkable deposits.
Liquidity in finance by the book is how quickly any asset can be changed in to hard cash. Therefore, any account having only cash can be said as the most liquid. For instance, a checking or a saving account could be considered the most liquid accounts.
The most liquid assets are those that are the quickest to convert to cash. Currency is very liquid since it is already cash. Savings bonds are also highly liquid because they can be redeemed at the bank. The least liquid of the three assets would be a house.
Which of the following is the most liquid money M1 M2 M3 M4?
M1 is most liquid.
M1, M2 and M3 are measurements of the United States money supply, known as the money aggregates. M1 includes money in circulation plus checkable deposits in banks. M2 includes M1 plus savings deposits (less than $100,000) and money market mutual funds. M3 includes M2 plus large time deposits in banks.
M4is the least liquid and M1 is the most liquid measure of money.
A credit card is not a part of the M1 or M2 money supply, and as a matter of fact, is not part of the money supply at all. This is because money supply is the aggregate value of monetary assets, and does not include liabilities. Credit card balance represents a liability, not an asset.
M2 is a measure of the money supply that includes cash, checking deposits, and other deposits readily convertible to cash, such as CDs. M1 is an estimate of cash, checking, and savings account deposits only.
Money is measured with several definitions: M1 includes currency and money in checking accounts (demand deposits). Traveler's checks are also a component of M1, but are declining in use. M2 includes all of M1, plus savings deposits, time deposits like certificates of deposit, and money market funds.
Because Bitcoin can be used to purchase goods and services immediately, it would be included in M1 and would cause M1 to rise. Also, as discussed above, everything in M1 is included in M2, so if M1 rises, so will M2.
M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (2) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs.
M2 is a more stable form of money supply compared to M1 because M2 has M1 as one of its constituents with an addition of other liquid assets that are not easily transformed into cash. Additionally, some of the constituents of M2 are not contained in the M1 money supply.
M1 money supply includes those monies that are very liquid such as cash, checkable (demand) deposits, and traveler's checks. M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.
Is M2 the most liquid form of money?
M1 and M2 are progressively more inclusive measures of money: M1 is included in M2. M1 consists of the most liquid forms of money, namely currency, demand deposits, and other liquid deposits. Other liquid deposits includes ATS and NOW accounts, share draft accounts, and savings deposits.
The Federal Reserve affects the money supply by affecting its most important component, bank deposits. Here is how it works. The Federal Reserve requires depository institutions (commercial banks and other financial institutions) to hold as reserves a fraction of specified deposit liabilities.
M2 is a measurement of the nation's money supply that estimates all of the cash that everyone has in hand or in short-term bank deposits. M1 is the money supply that encompasses physical currency and coin, demand deposits, traveler's checks, and other checkable deposits.
Cash is most liquid asset because it is used for buying and selling goods and services instantly without losing its own value.
M2 money supply is a broader measure of the money stock within an economy, which includes all components of M1 money supply along with additional types of financial assets. M1 money supply represents the most liquid forms of money, such as physical currency (coins and banknotes) and demand deposits (checking accounts).
