Monetary Aggregates

AAA

DEFINITION of 'Monetary Aggregates'

Broad categories measuring the total value of the money supply within an economy. In the United States, the standardized monetary aggregates and their measured contents are known as:

M0 – Physical cash and coin
M1 – All of M0 plus demand deposits, traveler's checks
M2 – All of M1 plus savings deposits, money market shares

There is also an M3 aggregate that includes larger (greater than $100,000) time deposits and institutional funds. The M3 measure is no longer tracked by the Federal Reserve as of 2006, although analysts still calculate the figure broadly. The Federal Reserve uses monetary aggregates to measure the effects of open-market operations, like changing the discount rate or trading in Treasury securities.

BREAKING DOWN 'Monetary Aggregates'

Monetary aggregates are watched closely by economists and investors, as they give a clear picture of the true size of the "working" money supply. Frequent reporting of the M1 and M2 measures (data is published weekly) allows investors to measure the rate of change in the monetary aggregates and overall monetary velocity.

If the monetary aggregates are growing too quickly, it could trigger inflationary fears (more money chasing after the same amount of goods and services leads to rising prices) and cause central-banking groups to raise interest rates or otherwise halt money-supply growth.

While the monetary aggregates were once key in determining overall central-banking policy, the past few decades have shown a lower correlation between changes in the money supply and key metrics like inflation, GDP and unemployment.

RELATED TERMS
  1. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  2. M1

    A measure of the money supply that includes all physical money, ...
  3. M2

    A measure of money supply that includes cash and checking deposits ...
  4. M0

    A measure of the money supply which combines any liquid or cash ...
  5. Economic Indicator

    An economic indicator is a piece of economic data, usually of ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
Related Articles
  1. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  2. Personal Finance

    How The Federal Reserve Manages Money Supply

    Find out how the Fed manages bank reserves and this contributes to a stable economy.
  3. Forex Education

    The History Of Money: Currency Wars

    Find out how conflicts have changed the role money plays in our lives.
  4. Investing News

    Job Report Brings Fed Rate Hike Into Question

    On Friday, the U.S. Bureau of Labor Statistics released its report on employment situation in the U.S. for the month of August. According to the report, the U.S. added 173,000 jobs, falling short ...
  5. Economics

    Defining Cost-Push Inflation

    Cost-push inflation is caused by an increase in the cost of production, due to higher prices for raw materials or labor.
  6. Fundamental Analysis

    Explaining the Central Limit Theorem

    Central limit theorem is a fundamental concept in probability theory.
  7. Economics

    Calculating the Consumption Function

    The consumption function shows the level of consumer spending as it relates to disposable income.
  8. Fundamental Analysis

    Examining Mexico's Trillion-Dollar GDP

    Examining the gross domestic product growth and composition of Mexico, the second largest economy in Latin America
  9. Fundamental Analysis

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
  10. Term

    Understanding Net Exports

    Net exports are the difference between a country’s exports and imports.
RELATED FAQS
  1. How do open market operations affect the U.S. money supply?

    Formulating a country's monetary policy is extremely important when it comes to promoting sustainable economic growth. More ... Read Full Answer >>
  2. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>
  3. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
  4. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  5. Why do some people claim the Federal Reserve is unconstitutional?

    The U.S. Constitution does not mention the need for a central bank, nor does it explicitly grant the government the power ... Read Full Answer >>
  6. How can the federal reserve increase aggregate demand?

    The Federal Reserve can increase aggregate demand in indirect ways by lowering interest rates. Aggregate demand is a measure ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Depreciation

    1. A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both ...
  2. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  3. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  4. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  5. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  6. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!