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    Question

    M₂ is one of the measures of money supply. M₂ is the

    sum of M₁ + _________.
    A saving deposits with post office Correct Answer Incorrect Answer
    B National Saving Certificates Correct Answer Incorrect Answer
    C coins and currency notes Correct Answer Incorrect Answer
    D demand deposits Correct Answer Incorrect Answer

    Solution

    M₂ includes all components of M₁ (which comprises currency in the hands of the public and demand deposits, or other liquid deposits), plus savings deposits (including money market deposit accounts), small-denomination time deposits (certificates of deposit, or CDs, of under $100,000), and retail (small-denomination) money market mutual fund shares. These elements are seen as "near money" and can be readily converted to cash, therefore, they are included in the broader measure of the money supply known as M₂. Post office savings are included as they are a type of savings deposit. National Saving Certificates, coins and currency notes, and demand deposits are not added to M₁ to get M₂, as these are either already accounted for in M₁ or are different form of savings assets.

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