The M2 money supply is a measure of the money supply that includes near money, which has intermediate nearness. Near money refers to financial assets that are not directly used as a medium of exchange but can be easily converted into cash or used for transactions (Investopedia, 2021). The M2 money supply includes everything in M1, which consists of currency in circulation and checkable deposits, and adds several other types of deposits (Lumen Learning, n.d.).
Key Facts
- The M2 money supply includes near money, which has intermediate nearness.
- Near money refers to financial assets that are not directly used as a medium of exchange but can be easily converted into cash or used for transactions.
- The M2 money supply includes everything in M1, which consists of currency in circulation and checkable deposits, and adds several other types of deposits.
- The near monies included in the M2 money supply are:
- Savings deposits: These are bank accounts that typically offer interest and can be easily withdrawn from an ATM or bank.
- Time deposits under $100,000: These are accounts where the depositor commits to leaving the money in the bank for a specific period in exchange for a higher interest rate.
- Retail money market funds: These are investment funds that pool money from individual investors and invest in short-term, low-risk securities.
Components of Near Money in M2
The near monies included in the M2 money supply are:
Savings deposits: These are bank accounts that typically offer interest and can be easily withdrawn from an ATM or bank.
Time deposits under $100,000: These are accounts where the depositor commits to leaving the money in the bank for a specific period in exchange for a higher interest rate.
Retail money market funds: These are investment funds that pool money from individual investors and invest in short-term, low-risk securities.
Conclusion
The M2 money supply is a broader measure of the money supply than M1 and includes near money, which can be easily converted into cash or used for transactions. The near monies included in the M2 money supply are savings deposits, time deposits under $100,000, and retail money market funds.
References
Investopedia. (2021, April 22). Near Money: Definition, Examples, and Importance. Investopedia. https://www.investopedia.com/terms/n/near-money.asp
Lumen Learning. (n.d.). Reading: Measuring Money: Currency, M1, and M2. Lumen Learning. https://courses.lumenlearning.com/suny-macroeconomics/chapter/measuring-money-currency-m1-and-m2/
FAQs
What is the M2 money supply?
The M2 money supply is a measure of the money supply that includes near money, which has intermediate nearness.
What is near money?
Near money refers to financial assets that are not directly used as a medium of exchange but can be easily converted into cash or used for transactions.
What are the components of near money in the M2 money supply?
The near monies included in the M2 money supply are savings deposits, time deposits under $100,000, and retail money market funds.
Why is the M2 money supply broader than M1?
The M2 money supply is broader than M1 because it includes near money, which is not included in M1.
How is near money different from money?
Near money is different from money in that it is not directly used as a medium of exchange, although it can be easily converted into cash or used for transactions.
What are some examples of near money?
Examples of near money include savings deposits, time deposits, and retail money market funds.
Why is near money important?
Near money is important because it provides a store of value and can be used to make payments.
How does the M2 money supply affect the economy?
The M2 money supply can affect the economy by influencing interest rates, inflation, and economic growth.