Which of the following items is included in a broader definition of very liquid assets (M2), but not in transaction deposits (M1) ?

a. Currency

b. Travelers checks

c. Treasury bills T-bills

d. Savings deposits

Savings deposits is included in a broader definition of very liquid assets (M2), but not in transaction deposits (M1)

Explanation:

Savings deposits is a bank account where one is not able to get cash by drafting using a checkbook, however one can get the cash at a bank or able to transfer it quietly to a checking account. M1 money supply is termed as a conventional description of the money supply that involves currency and checking accounts in banks, and to a lesser degree, traveler's checks. M2 money supply is a description of the money supply that combines everything in M1, additionally joins savings deposits, money market funds, and certificates of deposit. In short the relation between bot M1 and M2 is shown below:

M1 = coins and currency in circulation + checkable (demand) deposit + traveler's checks. M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposit