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Which two items make up M1?
ATime deposits and certificates of deposit
BCurrency and government bonds held by banks
CDemand deposits and time deposits together
DCurrency and demand deposits held in the system
Answer & Solution
Correct answer: D. Currency and demand deposits held in the system
1. M1 describes the total amount of readily available money in the system.
2. Readily available means spendable at once, so M1 includes currency and demand deposits.
3. Time deposits are left out of M1 because they cannot be withdrawn on demand.
4. Government bonds are not money at all, so they never enter either measure.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.1 Show Me the Money_
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