How Does M2 Differ from M1

question 66

Multiple Choice

How does M2 differ from M1?

• A) M2 includes holdings of gold but excludes currency.
• B) M2 is smaller than M1.
• C) M2 excludes traveler's checks but includes money market mutual funds.
• D) M2 includes M1 plus time deposits.

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods.

Marginal Product

The increase in output that results from employing one more unit of a factor of production.

Income Effect

How an individual's or economic income shift influences the demand for goods or services.

Substitution Effect

The substitution effect describes the change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute one good for another.