Finance: What are M1, M2 and M3?

M1, M2, and M3 are different measurements of economic money supply. Ah, well...we were hoping it was some sort of James Bond, MI6 thing.

College and CareerPersonal Finance
CoursesFinance Concepts
FinanceFinance Definitions
Financial Responsibility
Personal Finance
Finance and EconomicsTerms and Concepts
LanguageEnglish Language
Life SkillsFinance Definitions
Personal Finance
SubjectsFinance and Economics
Terms and ConceptsTech

Transcript

00:19

okay and one two and three are just different measures

00:21

or gradations for how we count the money supply in

00:25

the economy Think of these m numbers is analog is

00:28

teo def con one is like get ready for nuclear

00:31

war and def con five is like you know well

00:35

all is well on ly the m numbers here relate

00:39

to liquidity e how closely those m numbers approximate the

00:44

easily immediately available cash in the economy So em one

00:49

reflects the most liquid number and just includes paper currency

00:53

like you know dolla dolla bills and callings and things

00:56

like checking accounts in banks where you can walk in

00:59

and in an hour or less get a load of

01:01

cash we'll em one represents a relatively small slice of

01:05

the total m number in the economy or about one

01:08

and a half trillion box And yes that's a lot

01:11

Of nickels but it's relatively small in the kissing twenty

01:14

trillion dollars u s economy em two adds to the

01:17

m one totals What's called near money like the money

01:20

market securities savings deposits longer duration deposits like six month

01:25

cds up to one hundred grand and stuff like that

01:28

well em to totals almost eight trillion box these days

01:32

And kind of make sense People sock away more money

01:35

in cds and short term paper than they would dollar

01:37

bills in your wallet Right And it's A big delineation

01:40

Why Well it can be converted to money I'ii converted

01:44

to m one quickly So that's what those cds are

01:47

m three is the biggest slice of pie like mohr

01:50

savings bigger volumes and longer term duration Commitment to making

01:55

that two percent a year whatever you make these days

01:57

So m three includes stuff like time deposits more than

02:00

one your grand at euro dollar deposits over a hundred

02:03

grand Other things that can take more than a day

02:06

roughly to be converted into cash So m three is

02:09

somewhat less liquid than him One and two Got it

02:12

Well as long as all that makes sense to you 00:02:14.758 --> [endTime] Then well you know all is well