A Reason That Economists Keep an Eye on Both M2

question 147

Multiple Choice

A reason that economists keep an eye on both M2 and M1 is because

• A) M2 is more accurate than M1.
• B) both fluctuate widely and frequently in total dollar value.
• C) money market accounts are sometimes used like checking accounts and sometimes like savings accounts.
• D) during a recession, M1 is meaningless.

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Definitions:

Junk Bonds

Junk bonds are high-yield bonds that carry a higher risk of default compared to investment-grade bonds, offering higher interest rates to compensate for the increased risk.

Interest Rate Risk

The potential for investment losses due to fluctuations in the interest rates, affecting the value of interest-bearing assets like bonds.

Variable Rate Coupons

Bonds or other loans that have interest payments adjusted at periodic intervals based on a reference interest rate.