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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
    Collection of highly liquid assets, including cash, demand deposits, and savings, easily used for transactions.
  • M2
    Broader measure including M1 plus less liquid assets like money market funds and certificates of deposit.
  • Liquidity
    Degree to which assets can be quickly converted to cash for spending or transactions.
  • Currency
    Physical cash such as coins and bills, immediately available for purchases.
  • Demand Deposits
    Bank account balances accessible by check or debit card, allowing quick spending.
  • Savings
    Bank accounts offering quick access to funds, now included in M1 due to online banking.
  • Money Market Funds
    Investment vehicles requiring a waiting period to access cash, considered less liquid.
  • Certificates of Deposit
    Bank products with fixed maturity dates, restricting immediate access to funds.
  • Online Banking
    Digital platform enabling rapid movement of funds, increasing asset liquidity.
  • Market Equilibrium
    State where supply and demand balance, influenced by the availability of liquid assets.
  • Economic Profits
    Financial gains affected by asset liquidity and transaction ease in the market.
  • Cash Register
    Point-of-sale device where liquid assets like currency are exchanged for goods.
  • Maturity Date
    Specified time when funds from certain assets, like CDs, become accessible.
  • Transaction
    Exchange process involving assets, with speed determined by liquidity.