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Defining the Money Supply: M1 and M2 definitions

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  • Money Supply
    Total amount of monetary assets available in an economy, categorized by liquidity for economic analysis.
  • M1
    Category including the most liquid assets, such as cash, demand deposits, and savings, easily used for transactions.
  • M2
    Broader measure that includes M1 plus less liquid assets like money market funds and certificates of deposit.
  • Liquidity
    Degree to which an asset can be quickly converted into cash for spending without significant loss of value.
  • Currency
    Physical cash, such as coins and bills, immediately available for transactions and purchases.
  • Demand Deposits
    Bank account balances, accessible via checks or debit cards, that can be withdrawn on demand for spending.
  • Savings
    Bank accounts offering quick access to funds, now considered highly liquid due to online banking advancements.
  • Money Market Funds
    Investment vehicles holding short-term debt, requiring a waiting period before funds become available as cash.
  • Certificates of Deposit
    Time-bound savings instruments with fixed maturity dates, restricting immediate access to deposited funds.
  • Monetary Aggregates
    Grouped measures of money supply, such as M1 and M2, used to assess economic liquidity and policy impacts.
  • Monetary Base
    Foundation of an economy's money supply, including currency in circulation and reserves held by banks.
  • Online Banking
    Digital platform enabling rapid transfers and access to funds, increasing the liquidity of savings accounts.