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
  • M2
  • M3

M1

M1 is the largest and most liquid measure of the nation’s money supply and it includes:

  • Cash
  • Demand deposits (Checking accounts)

M2

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

M3

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

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

Introduction

Related Articles
  1. Insights

    What is Money?

    Money: It's a part of everyone's life, and we all want it, but what is it, how does it gain value, and how it was created?
  2. Insights

    Debt Monetization: A Nearsighted Government Policy?

    We look at whether this financial practice benefits a government in the long term.
  3. Personal Finance

    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.
  4. Personal Finance

    The 7 Best Places to Put Your Savings

    You work hard to put your money away for the future, but where should you keep it?
  5. Personal Finance

    5 Mistakes You're Making With Money Market Accounts

    Money market accounts can be helpful "parking spots" for investors. Here are five key things to keep in mind when opening an account.
  6. Investing

    The Money Market

    The money market provides a relatively stable place to park capital that may be needed within a short time horizon.
  7. Investing

    The Pros and Cons of Money Market Funds

    Find out the pros and cons of different money market funds and learn if investing in a one is right for you.
  8. Investing

    Introduction To Money Market Mutual Funds

    Learn about the easiest way to benefit from money market securities.
Frequently Asked Questions
  1. What is a trade deficit and what effect will it have on the stock market?

    Learn what is a trade deficit is, also known as net exports, and what effect they have on the stock market.
  2. What are soft dollars?

    The term 'soft dollars' refers to mutual funds making in-kind payments to their service providers; for instance, by passing ...
  3. How often do exchange rates fluctuate?

    Learn how exchange rates fluctuate. Exchange rates float freely against one another, which means they are in constant fluctuation. ...
  4. What is the formula for calculating earnings per share?

    Learn how to calculate earnings per share and why it's an important gauge in determining a stock’s value and a company's ...
Trading Center