Which is NOT in M2?

Question

Which is NOT in M2?

BlackTom AI · Accepted Answer

M2 includes M1 plus several near-money assets, so M2 = M1 + savings deposits + small time deposits + retail money market mutual fund balances.

1) Relevant knowledge points and concepts
- M1 consists of the most liquid forms of money: currency (paper money and coins), traveler's checks, and checkable (transaction) deposits.
- M2 expands M1 to include less liquid but still readily convertible assets: savings deposits, small-denomination (under $100,000) time deposits, and retail money market mutual funds.
- U.S. government savings bonds are not part of M2 because they are not bank deposits or retail money market instruments and are relatively illiquid until redeemed.

2) Step-by-step reasoning
- Check whether each choice is part of M2:
  a. Traveler's checks — included in M1 (and therefore M2).
  b. Savings bonds — not a checking deposit, savings deposit, or retail money market instrument; they are government-issued securities and are excluded from M2.
  c. Currency — part of M1 (and thus included in M2).
  d. Checking deposits — checkable deposits are in M1 and thus in M2.

3) Intermediate steps / classification
- Currency → M1 → in M2.
- Traveler’s checks → M1 → in M2.
- Checking deposits (checkable deposits) → M1 → in M2.
- Savings bonds → government securities; classified as assets but not included in M2.

4) Why the correct answer is correct
Savings bonds are not counted in the monetary aggregates M1 or M2 because they are not a deposit or a retail money market fund balance and are not a liquid medium for transactions. M2 targets money-like assets that can quickly become transaction balances; savings bonds require redemption and are treated as an investment/security rather than money.

5) Why the other options are incorrect
- Traveler’s checks: included in M1 and so in M2.
- Currency: core component of M1 and M2.
- Checking deposits: checkable deposits are in M1 and thus in M2.

6) Conclusion
Therefore the item NOT in M2 is b. savings bonds, which matches the provided answer.

Which is NOT in M2?Single choice

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