Final answer:
Money market funds invest primarily in short-term debt securities, offering high liquidity and low risk. They are part of the M2 money supply and include securities like government bonds and CDs.
Step-by-step explanation:
Money market funds primarily invest in short-term debt securities. These funds pool together the deposits of many investors to invest in vehicles like short-term government bonds, which are considered to be safe investments. They are a component of the M2 money supply and are designed to offer investors a high degree of liquidity with a low level of risk.
Investments typically include instruments like government savings bonds, small CDs (Certificates of Deposit), and money market mutual funds. These are preferred because they can be readily converted to cash, making money market funds a suitable option for investors who need stability and easy access to their money.
Money multiplier formula, on the other hand, is a different concept related to the total money in the economy, and it is not directly connected to the investment strategy of money market funds. It calculates the total money supply generated from the original quantity of money.