Prior to determining an appropriate economic policy, economists must have an idea of the amount of money that is in circulation, along with the amount of other types of assets that will provide access to cash. Economists gauge the money supply using three measures. They are:
M1 is the largest and most liquid measure of the nation’s money supply and it includes:
- Demand deposits (Checking accounts)
Includes all the measures in M1 plus:
- Money market instruments
- Time deposits of less than $100,000
- Negotiable CD exceeding $100,000
- Overnight repurchase agreements
Includes all of the measures in M1 and M2 plus
- Time deposits greater than $100,000
- Repurchase agreements with maturities greater than 1 day
Disintermediation occurs when people take their money out of low yielding accounts offered by financial intermediaries or banks and invest money in higher yielding investments.
series 62 textbooks - SecuritiesCE.com
InvestingM1 is a measurement of money supply that includes all hard currency, plus demand deposits such as checking accounts.
InvestingA demand deposit is any type of account where the money in the account may be withdrawn at any time without prior notice to the financial institution.
InsightsIt's a part of everyone's life, and we all want it, but do you know how it gains value and how it is created?
Personal FinanceTime deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
TradingA larger money supply lowers market interest rates, while a smaller supply tends to raise them.
RetirementMoney market funds are used in retirement plans and accounts because they are liquid, stable and pay competitive rates of interest.
InvestingLearn about the economic factors that have created a slowdown in the Chinese economy and why investing in Chinese stocks is still a risky endeavor.
InsightsHere's how the Central Bank of China manages its currency rates and the money supply.