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How does M2 differ from M1? What are money market mutual funds? Looking for a type-in...

How does M2 differ from M1? What are money market mutual funds?

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Answer #1

M-2 and M-1 are both the criteria of money designed by the Central Bank as per the liquidity.

M-2 measure is less liquid than M-1 measure

M-2 includes cash, chequeble deposies, traveller's cheque, certificate of deposites, money market mutual funds, time deposites and savings

M-1 being more liquid only includes cash, chequeable deposit, traveller's cheque

Money market mutual funds are funds that Invest solely in highly cash/cash equivalent securities. These are short term, very liquid Investments and with a very high credit quality. The instruments include certificate of deposit, commercial paper and banker's acceptance.

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