M2 definition

M2 is a measure of money supply, referring to a certain portion of the money contained in an economy.

Economists use M followed by a number to designate certain portions of money supply. The exact use of this indicator of money supply varies between economies: in the UK, for instance, M2 is not typically used and M4 is the key indicator.

In the US, M1 is the total amount of cash and current account balances. M2 is M1 but with savings accounts, money market funds and other deposits included. Broadly, M2 is widened to include money that is not completely liquid, but that can be quickly converted into cash or back into current accounts. This can often be referred to as ‘near money’.

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