Final answer:
The M1 money supply includes coins, currency, and checkable deposits, while the M2 money supply includes M1 plus savings deposits, money market funds, and certificates of deposit. M1 money is more liquid and used for transactions, while M2 money is less liquid and used for savings. Example of M1 money supply includes coins and currency in circulation, while an example of M2 money supply includes savings deposits.
Step-by-step explanation:
M1 money supply includes coins and currency in circulation, along with checkable deposits such as demand deposits in checking accounts. This narrow definition of money includes the most liquid forms of money that can be easily used for transactions.
On the other hand, M2 money supply includes everything in M1 and adds savings deposits, money market funds, and certificates of deposit. These forms of money are less liquid and are typically used for saving or investing.
For example, a $20 bill in your wallet is part of M1 money supply because it is readily available for use in transactions. A savings account balance of $1,000 is part of M2 money supply because the money is less liquid but still easily accessible for saving purposes.