Final answer:
It is false that M1 includes all components of M2; M1 is a subset of M2 and includes currency, checking deposits, and traveler's checks, while M2 encompasses these plus savings accounts, time deposits, and money market balances.
Step-by-step explanation:
The money supply is the sum total of all of the currency and other liquid assets in a country's economy on the date measured. The money supply includes all cash in circulation and all bank deposits that the account holder can easily convert to cash. The statement that money supply M1 includes all components of M2 is false. The money supply M1 is defined as a narrow measure of the money supply that encompasses currency in circulation, checking deposits, and traveler's checks.
On the other hand, M2 includes all of M1's components plus additional forms of money, such as savings accounts, time deposits, and money market mutual fund balances. Therefore, M1 is a subset of M2, and not all components of M2 are included in M1. Currency out in the public hands is part of both M1 and M2. Checking deposits are in both M1 and M2. Money market accounts are included only in M2, not M1.