1. What Is Money Supply M2?

Money Supply M2 is a broad measure of the money supply that includes M1 (physical currency and checkable deposits) plus near money. Near money refers to highly liquid financial assets that can be quickly converted to cash.

2. How Does The Calculator Work?

The calculator uses the M2 money supply formula:

Where:

• \( M1 \) — Narrow money supply including physical currency and checkable deposits
• \( \text{Near Money} \) — Highly liquid assets like savings deposits, money market securities, and mutual funds

Explanation: M2 represents a broader definition of money supply that captures both immediately spendable money and assets that can be easily converted to spendable money.

3. Importance Of Money Supply Calculation

Details: Calculating M2 money supply is crucial for central banks and economists to monitor monetary policy effectiveness, control inflation, and understand economic liquidity conditions.

4. Using The Calculator

Tips: Enter M1 value in currency units, enter near money value in currency units. Both values must be non-negative numbers representing the respective monetary aggregates.

5. Frequently Asked Questions (FAQ)

Q1: What components are included in M1?
A: M1 includes physical currency, demand deposits, traveler's checks, and other checkable deposits.

Q2: What constitutes near money?
A: Near money includes savings deposits, money market accounts, certificates of deposit under $100,000, and other highly liquid assets.

Q3: Why is M2 important for economic analysis?
A: M2 provides a comprehensive view of money available for spending and investment, helping policymakers gauge economic activity and inflationary pressures.

Q4: How often is M2 measured?
A: Central banks typically measure and report M2 on a weekly or monthly basis to track monetary aggregates.

Q5: What's the difference between M2 and M3?
A: M3 includes M2 plus large time deposits, institutional money market funds, and other larger liquid assets, providing the broadest measure of money supply.