Question

In the narrowest definition of money, M1, savings accounts are excluded because they are a interest paying accounts. b not a medium of exchange. c a store of purchasing power. d not insured by federal deposit insurance. e available from financial institutions other than banks.

Answer 1

Answer:

b. not a medium of exchange

Explanation:

M1 represents money supply comprising of those instruments of monetary value, which are highly liquid and readily convertible to cash. So M1 includes cash in hand in the form of currency and coins, demand deposits, travelers checks and others payable on demand.

Those securities and short term investments which cannot be readily converted to cash or which require some time period are excluded from the definition of M1.

Thus, M1 excludes financial assets like bonds and savings account. M1 is regarded to be the narrowest definition of money as it takes into account only the money which is getting circulated in a country.

It takes into consideration only the money that can be used as basic medium of exchange and under it, savings account cannot be considered as a medium to exchange and is classified under M2.