The broader measure M2, however, since it encompasses most significant forms of money individuals may hold, resolves the problem. The shifts in asset holdings take place within the broader measure. That doesn't make It impervious to distortion, but M2 velocity has shown substantial predictability for several years.
- What is M2 velocity?
- Explain why M2 velocity should be more predictable than M1 velocity.
- What is the problem referred to at the very end of the first sentence, and exactly how does M2 solve this problem?