Final answer:
M1 is the narrowest monetary aggregate reported by the Fed, including currency and checking accounts as its primary components, known for its high liquidity compared to the broader aggregates like M2 and M3.
Step-by-step explanation:
The narrowest monetary aggregate that the Fed reports is M1. This category, sometimes referred to as narrow money, includes the most liquid forms of money like currency, checking accounts in banks, and to a lesser extent, traveler's checks. According to the liquidity hierarchy of monetary aggregates, higher numbers indicate lower liquidity, thus M1 is more liquid than M2, and M2 is more liquid than M3. The category M0 is also used, representing the base money or the most liquid form of money used primarily as a means of exchange, which includes physical currency in circulation and reserves held by banks. Monetary aggregates are an overall measure of the money supply, with M1 being the narrowest definition enlisted by the Fed.