Question

Why does looking at the M2 money supply give economists a better picture of how an economy is doing?

Select one:
a. It includes a better sample of the money in circulation.
b. It counts all money in the economy, including money that is hard to reach like those in stocks and bonds.
c. It gives a more targeted look at the currency than M1 by only looking at coins and paper money.
d. It helps businesses decide on what prices to charge for goods and services.

Answer 1

The M2 money supply gives economists a better picture of the economy as it counts all money in the economy, including money that is hard to reach like those in stocks and bonds.

Step-by-step explanation:

The correct answer is b. It counts all money in the economy, including money that is hard to reach like those in stocks and bonds.

Looking at the M2 money supply gives economists a better picture of how an economy is doing because it includes a broader range of assets compared to M1. M2 includes everything in M1 (currency, checking accounts, and traveler's checks) and adds savings deposits, money market funds, and certificates of deposit. This means that M2 captures not only the money that is in circulation but also includes money that is harder to access, such as those in stocks and bonds.