What is the difference between broad money and M2?
Broad money, often referred to as M2 or money supply M2, is a measure of the total money supply within an economy that includes physical currency, such as coins and banknotes, as well as various types of liquid assets that are easily accessible and can be quickly converted into cash.
Typically, "broad money" refers to M2, M3, and/or M4. The term "narrow money" typically covers the most liquid forms of money, i.e. currency (banknotes and coins) as well as bank-account balances that can immediately be converted into currency or used for cashless payments (overnight deposits, checking accounts, etc).
M1 money supply includes those monies that are very liquid such as cash, checkable (demand) deposits, and traveler's checks. M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.
In most cases, broad money means the same as M3, while M0 and M1 usually refer to narrow money.
Broad money (M3) includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares/units and debt securities up to two years.
M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds.
M3 measurement of money supply is a broader concept of money supply compared to M1. Besides all the components of M1, it includes net time deposits (or fixed deposits or term deposits) of the people with the commercial banks. Therefore, M3 is also called broad money.
Broad money does not include assets, such as long-term dated securities and shares. Although these can be sold, they are not included in terms of broad money because they fall in the category of assets rather than money.
Broad money includes all the items included in narrow money, but also any other liquid assets that can be used to buy goods and services. The total amount of money circulating in an economy is called money supply, and its size is generally tracked and reported publicly by each country's central bank or government.
Money is measured with several definitions: M1 includes currency and money in checking accounts (demand deposits). Traveler's checks are also a component of M1, but are declining in use. M2 includes all of M1, plus savings deposits, time deposits like certificates of deposit, and money market funds.
What does M2 mean in economics?
What is M2? M2 is a classification of money supply. It includes M1 – which is comprised of cash outside of the private banking system plus current account deposits – while also including capital in savings accounts, money market accounts and retail mutual funds, and time deposits of under $100,000.
M2 represents currency outside banks plus bank personal deposits, banks non personal demand and notice deposits, less interbank deposits plus continuity adjustments. M2+ represents M2 plus deposits at trust and mortgage loan companies and at government saving institutions, deposits and shares at credit unions, etc.
M1: Currency in circulation plus overnight deposits. M2: M1 plus deposits with an agreed maturity up to two years plus deposits redeemable at a period of notice up to three months. M3: M2 plus repurchase agreements plus money market fund (MMF) shares/units, plus debt securities up to two years.
It means they cannot be withdrawn or used by the people immediately like M1 and M2, which represent narrow money. Therefore, M3 and M4 are termed as broad money.
The United States, for example, does not use M0 or M4 in its classification. They use M1-M3 only, with M1 including all forms of narrow money. In this case, M1 includes more liquid money, such as coins or notes. On the other hand, M2 or M3, such as money market funds, are less liquid.
Therefore, one can express it in terms of the following formula: M2 = M1 + savings deposits + retail money market mutual funds + time deposits + money market deposit accounts. (M1 encompasses coins and currency in circulation, checkable demand deposits + traveler's checks, etc.)
Broad money is the most flexible method for measuring an economy's money supply, accounting for cash and other assets easily converted into currency. M1 is the money supply that encompasses physical currency and coin, demand deposits, traveler's checks, and other checkable deposits.
When commercial banks lend money, they expand the amount of bank deposits. The banking system can expand the money supply of a country beyond the amount created by the central bank, creating most of the broad money in a process called the multiplier effect.
The biggest difference between the M2 and M3 models is in the chip that runs the laptops. And if you want the very best performance, especially for AI applications (both on the cloud and on-device), look to the M3.
M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (2) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs.
Why is M2 falling?
The unprecedented decline in M2 is being fueled by the Fed's aggressive monetary policy tightening, including lifting interest rates from near zero to over 5% since March 2022, a decline in credit availability, turmoil in the banking sector and the end of COVID-19 government stimulus efforts.
These assets that may be excluded from money include long-term securities, loans, shares and other equity, financial derivatives, and shares in equity mutual funds and bond mutual funds that may experience substantial price variability (IMF, 2000, paragraphs 312-313).
This is called broad money, and according to the CIA World Factbook, and the global total is in excess of $80 trillion. Most of the broad money in the world economy isn't actually cash held in bank vaults, explained Karen Petrou, managing partner at Federal Financial Analytics.
2020. Broad money measures the amount of money circulating in aneconomy. Total reserves comprise holdings of monetary gold,special drawing rights, reserves of IMF members held by the IMF,and holdings of foreign exchange under the control of monetaryauthorities.
Broad money refers to the total amount of money in circulation, including cash and bank deposits, while narrow money only includes the most liquid forms of money, such as cash and highly liquid bank deposits.
