Final answer:
Nonmonetary assets like real estate or collectibles can sometimes be involuntarily converted into cash due to unforeseen circumstances, and these assets can also include liquid assets like mutual funds which are easily convertible to cash.
Step-by-step explanation:
The statement 'Nonmonetary asset involuntarily converted to cash' can be true in certain circumstances. Nonmonetary assets are financial assets that aren't directly used for a medium of exchange but have intrinsic value and can be converted into cash. Examples of nonmonetary assets include real estate, art, and collectibles such as rare coins or stamps. These items are not liquid like currency, but under certain conditions, they can be converted into cash, sometimes involuntarily due to events such as natural disasters, theft, or eminent domain.
Assets like mutual funds are highly liquid and can be easily converted to cash, making them almost as liquid as checking accounts which fall under M1. M2 is a category of money supply that includes M1 plus savings deposits, small-denomination time deposits, and retail money market mutual fund shares. Since these are liquid assets, they can be quickly converted to cash, thus supporting the notion of nonmonitary assets being converted into cash readily.