Which component is included in M2 but not in M1?

M2 is a broader measure of the money supply compared to M1. It includes all the components of M1 plus additional forms of money that are less liquid. M1 consists of physical currency, like paper currency and coins, as well as checking accounts, which can be easily accessed and used for transactions.

Money market mutual funds are included in M2 but are not part of M1. These funds are considered to be a near-money asset because, although they can be quickly converted into cash, they are not as readily accessible as cash or checking account balances. M2, therefore, encompasses a wider array of financial instruments, providing a more complete picture of the liquidity available within the economy. This distinction is crucial for understanding the different components of the money supply and their respective roles in economic activity.