Final answer:
Money market funds strive to maintain a stable Net Asset Value (NAV) of $1 per share. These funds, part of the M2 money supply, invest in short-term, high-quality instruments. Banks' reserve requirements are a monetary policy tool that can influence money supply through the money multiplier.
Step-by-step explanation:
Money market funds invest in short-term, high-quality debt securities to manage the fund's yield, keeping the NAV stable. They provide investors with a safe place to invest their cash, comparable to bank deposits, and are included in the M2 money supply category.
Among a bank's assets, cash in vaults, reserves held at the Federal Reserve Bank, loans to customers, and bonds are included. Reserves are not only required by the Federal Reserve but can also be held in excess by banks. This reserve requirement is part of the monetary policy tools used by governments to influence banking operations and, by extension, affect the money multiplier. This multiplier reflects the total money in the economy relative to the original quantity of money deposited.