Which items are included in M1 money supply?

• A. Currency in circulation and checkable deposits
• B. Currency in circulation and savings deposits
• C. Checkable deposits and small time deposits
• D. Currency in circulation and retail money-market funds

Answer: (A)

M1 money supply consists of the most liquid money used for everyday transactions: currency in circulation and checkable deposits. Currency in circulation means the cash held by the public, outside of banks. Checkable deposits are funds in checking accounts (and other accounts that can be accessed on demand with checks or debit cards). These two together capture money that you can spend right away, which is why they form M1.

Savings deposits, small time deposits, and retail money-market funds are not part of M1 because they are less readily spendable; they either require time to access or are not immediately usable for transactions. Those components are included in M2, which broadens the measure of money to include near-money assets. So the combination of currency in circulation and checkable deposits correctly defines M1.