What is M1, M2, and M3 in Economics?
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The US Federal Reserve Board measures the money supply using the following measures.
M1
Money that can be spent immediately. Includes cash, checking accounts, and NOW accounts.
M2
M1 + assets invested for the short term. These assets include money- market accounts and money-market mutual funds.
M3
M2 + big deposits. Big deposits include institutional money-market funds and agreements among banks.
The pamphlet “Modern Money Mechanics,” which explains M1, M2, and M3 in gory detail, was once available free from the Federal Reserve Bank of Chicago. That pamphlet is no longer in print, and the Chicago Fed apparently has no plans to re-issue it. However, electronic copies of it are out there, and here’s one: http://landru.i-link-2.net/monques/mmm2.html
Article Credits:
Contributed-By: Ralph Merritt