1. What is M2 Money Supply?

M2 is a measure of the money supply that includes cash, checking deposits (M1), and easily convertible "near money" like savings accounts, money market securities, and time deposits under $100,000. It represents money that can be readily used for transactions.

2. How Does the Calculator Work?

The calculator uses the M2 equation:

Where:

• \( M1 \) — Physical currency and coin, demand deposits, traveler's checks, other checkable deposits
• \( Savings \) — Savings deposits including money market deposit accounts
• \( Time\ Deposits \) — Certificates of deposit and other time deposits

Explanation: M2 is a broader measure of money supply than M1, including assets that are highly liquid but not necessarily directly spendable.

3. Importance of Money Supply Measurement

Details: M2 is closely watched by economists as an indicator of money supply and future inflation. Central banks use it to guide monetary policy decisions.

4. Using the Calculator

Tips: Enter M1, savings deposits, and time deposits in USD. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between M1 and M2?
A: M1 includes only the most liquid forms of money, while M2 adds savings accounts, small time deposits, and retail money market funds.

Q2: Why is M2 important for the economy?
A: Changes in M2 can indicate future inflation or deflation and help predict economic growth patterns.

Q3: How often is M2 measured?
A: In the U.S., the Federal Reserve reports M2 weekly (every Thursday) and monthly.

Q4: What's not included in M2?
A: Large time deposits (>$100k), institutional money market funds, and other less liquid assets are excluded.

Q5: How does M2 relate to interest rates?
A: Generally, when M2 grows rapidly, central banks may raise interest rates to prevent inflation.