Why is currency held by the U.S. Treasury, the Federal Reserve Banks, commercial banks, and thrift institutions excluded from M1 and other measures of the money supply?

Question

Multiple choice question.

Because it is not a mutual fund

Because money does not have value when it is held by these institutions

Because the U.S. Treasury rarely holds currency

To avoid counting the same amount of money twice

Answer 1

The correct answer is:

To avoid counting the same amount of money twice.

When currency is held by the U.S. Treasury, the Federal Reserve Banks, commercial banks, and thrift institutions, it is not in active circulation within the economy as part of the money supply available for transactions. Including it in measures like M1 would lead to double counting, as these amounts are already accounted for in the money held by the public.