Question

Which two of the following financial institutions offer checkable deposits included within the M1 money supply: mutual fund companies; insurance companies; commercial banks; securities firms; thrift institutions? Which of the following items is not included in either M1 or M2: currency held by the public; checkable deposits; money market mutual fund balances; small-denominated (less than $100,000) time deposits; currency held by banks; savings deposits?

Short answer

The checkable deposits are offered by commercial banks and thrift or saving institutions.

Currency held by the bank is not included in either M1 or M2 money supply.

Step-by-step solution

Step 1. Checkable deposits

Checkable deposits are the deposits held by commercial banks and thrift institutions against which a cheque of any size can be drawn. These checkable deposits, along with the currency held by the general public in the form of notes and coins, form the M1 component of the money supply.

Step 2. M1 and M2 components of the money supply

The M1 component of the money supply includes the checkable deposits and the currency held by the general public. The M2 component of money supply includes savings deposits, including money market deposit accounts, small-denominated (less than $100,000) time deposits, money market mutual funds held by individuals, plus the M1.

Therefore, currency held by banks is not included in any of the components.