What does M1 measure in terms of monetary supply?

M1 is a measure of the money supply that includes the most liquid forms of money. It specifically encompasses the total currency in circulation (coins and paper money) that is held by individuals and businesses. This definition means that M1 focuses on money that can be readily used for transactions, including physical cash and demand deposits (checking accounts) that can be easily withdrawn or transferred.

The other options focus on aspects of the monetary system but do not align with the precise definition of M1. The government’s currency holdings, savings accounts, or assets held by financial institutions are all elements of the broader monetary supply but do not represent the immediate transactional money that M1 measures. M1's emphasis on money readily available for consumption and payment highlights its importance in analyzing the liquidity and health of an economy.