The M1 money supply includes:

Question

Accepted Answer

Currency in circulation, demand deposits, and other checkable deposits. The M1 money supply is the narrowest measure of the money supply and includes the most liquid forms of money: currency in circulation (paper bills and coins held by the public), demand deposits (checking accounts at commercial banks), and other checkable deposits (including NOW accounts and credit union share drafts). These are the forms of money most readily available for spending.

Gold and silver in government vaults describes monetary reserves, not the circulating money supply available for transactions. All financial assets including stocks and bonds describes a much broader measure of wealth than M1; stocks and bonds are investments, not money, because they must be sold and converted to cash before they can be used for transactions. Only savings accounts and CDs describes components of M2 (broader money supply) that are not included in M1 because they are less immediately available for transactions than checking accounts and cash.

The money supply measures (M1 and M2) are core concepts on the DSST Money and Banking exam. Students must understand that M1 includes the most liquid monetary assets, M2 includes M1 plus savings deposits, money market accounts, and small CDs, and the Federal Reserve monitors these aggregates as part of monetary policy. The distinction between the narrow and broad money supply reflects different degrees of liquidity.

DSST Money and Banking: Question of the Day

Get a free DSST Money and Banking question every day

Ready for the full DSST Money and Banking? Earn 3 college credits.