M2

Loading the player...

What is 'M2'

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money" in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

BREAKING DOWN 'M2'

M2 is a broader money classification than M1, because it includes assets that are highly liquid but not cash. A consumer or business typically won’t use savings deposits and other non-M1 components of M2 when making purchases or paying bills, but it could convert them to cash in relatively short order.

M1 and M2 are closely related, and economists like to include the more broadly defined definition for M2 when discussing the money supply, because modern economies often involve transfers between different account types. For example, a business may transfer $10,000 from a money market account to its checking account. This transfer would increase M1, which doesn’t include money market funds, while keeping M2 stable, since M2 contains money market accounts.

RELATED TERMS
  1. M1

    A measure of the money supply that includes all physical money, ...
  2. Money Supply

    The entire stock of currency and other liquid instruments in ...
  3. M3

    A measure of money supply that includes M2 as well as large time ...
  4. Monetary Aggregates

    Broad categories measuring the total value of the money supply ...
  5. Money Zero Maturity - MZM

    A measure of the liquid money supply within an economy. MZM represents ...
  6. Broad Money

    In economics, broad money refers to the most inclusive definition ...
Related Articles
  1. Economics

    What Part of the Money Supply is M2?

    M2 is the part of the money supply economists use to analyze and predict inflation.
  2. Professionals

    Money Supply

    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 ...
  3. Economics

    What is M1?

    M1 is a measurement of money supply that includes all hard currency, plus demand deposits such as checking accounts.
  4. Retirement

    Economic Indicators: Money Supply

    By Ryan Barnes Release Date: Weekly, every Thursday Release Time: 4:30pm Eastern Standard Time Coverage: M1 and M2 (M3 ...
  5. Professionals

    Money, Banks, and the Federal Reserve

    CFA Level 1 - Money, Banks, and the Federal Reserve - Basics
  6. Professionals

    Monetarist Theory

    Series 7 Guide - Section 9 Economic Theory
  7. Economics

    Understanding Money Supply

    Money supply – also called money stock -- refers to the total amount of currency and other liquid financial products in an economy at a particular time.
  8. Savings

    What is a Demand Deposit?

    A 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.
  9. Professionals

    Goals and Targets of the U.S. Federal Reserve

    CFA Level 1 - Goals and Targets of the U.S. Federal Reserve
  10. Savings

    Where To Put Your Cash: Call Deposit Vs Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
RELATED FAQS
  1. What types of money are included in money supply?

    Read about several different monetary aggregates used to define the money supply, both at the Federal Reserve and by outside ... Read Answer >>
  2. How do changes in interest rates affect M2?

    Learn about the effects of changes in interest rates on M2. M2 includes M1 and other less-liquid short-term investments that ... Read Answer >>
  3. Does M1 include foreign currency?

    Learn the definition of M1, as well as other categories of money supply in the United States. Learn how it may differ in ... Read Answer >>
  4. What happens when M2 money supply grows faster than the overall economy?

    Find out what happens if the total supply of money and money substitutes expands at a faster rate than the productive output ... Read Answer >>
  5. How much of the United States' money supply is M1?

    Learn how much money is in the M1 category of the United States money supply. Learn how M1 has averaged and changed over ... Read Answer >>
  6. How does the velocity of M2 money supply change?

    Discover which variables help determine the velocity of money (as measured by M2 aggregates) and why nominal income plays ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center