Currency in Bank Vaults and Federal Reserve Deposits

What is included in the M1 money supply?

a. Currency in circulation and demand deposits
b. Savings accounts and time deposits
c. Traveler's checks and other investments
d. All of the above

Answer:

a. Currency in circulation and demand deposits

When it comes to the M1 money supply, it includes currency in circulation and demand deposits. These are the most liquid forms of money that can be readily used for transactions. Currency in circulation refers to physical cash, while demand deposits are funds held in checking accounts that can be accessed at any time without restrictions.

On the other hand, savings accounts, time deposits, traveler's checks, and other investments are not part of the M1 money supply. These are considered near-monies and are included in broader measures of money supply like M2 and M3. While these forms of money can eventually be converted into cash, they are not as readily available for transactions as the components of M1.