What does M1 in the money supply include?

The correct answer is - Currency with the public + demand deposits + other deposits

Key Points

• Currency with the public + demand deposits + other deposits
  • M1 is a category of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts, and other deposits that can be converted to cash immediately.
  • It represents the most liquid forms of money that are readily available for transactions.
  • This measure of money supply helps in understanding the money that is readily available to be used for spending and transactions in the economy.

Additional Information

• Time deposits only
  • Time deposits refer to money held in accounts where the depositor has agreed to leave the funds for a specified period, such as fixed deposits or certificates of deposit (CDs).
  • These are not included in M1 as they are not as liquid as demand deposits and cannot be used as readily for transactions.
• Gold reserves
  • Gold reserves are the quantities of gold held by a nation's central bank and are not considered part of the money supply categories like M1, M2, or M3.
  • Gold reserves are used as a store of value and a guarantee to redeem promises to pay depositors, note holders, or trading peers.
• Foreign exchange reserves
  • Foreign exchange reserves are assets held by central banks in foreign currencies, which can include bonds, treasury bills, and other government securities.
  • They are used to back liabilities and influence monetary policy but are not part of the M1 money supply.