Final answer:
The M2 and M2+ definitions of the money supply focus on the medium-of-exchange function of money, as this category includes forms of money that are widely accepted for payment in addition to everything in M1 such as cash and checking accounts.
Step-by-step explanation:
The M2 and M2+ definitions of the money supply concentrate on the medium-of-exchange function of money. Therefore, the correct answer to the student's question is C) Medium-of-exchange. This definition captures various forms of money that are accepted as a method of payment, including everything in M1 (such as currency and checking accounts), but it also adds other forms of money like savings deposits, money market funds, and certificates of deposit. These additional components can be easily converted to cash or checking deposits, which serves the medium-of-exchange function by facilitating transactions.
Understanding the concept of money supply is critical. M1 is a narrow definition that reflects money readily available for transactions, while M2 is a broader measure, including M1 plus money that can be quickly converted into cash for transaction purposes. Components like savings deposits and money market funds can normally be easily converted to cash or checking accounts, which is why they're included in the M2 money supply.