M1

Definition

M1 refers to the narrowest definition of money supply, which includes physical currency (coins and paper money) in circulation, demand deposits (checking accounts), and traveler's checks.

Analogy

Think of M1 as the cash you have in your wallet or the money you can easily access from your checking account. It's like the immediate spending power you have at your fingertips.

Related terms

M2: M2 is a broader measure of money supply that includes all components of M1 plus savings deposits, time deposits (certificates of deposit), and retail money market funds.

Federal Reserve: The Federal Reserve, also known as the central bank of the United States, plays a crucial role in controlling and regulating the money supply.

Monetary Policy: Monetary policy refers to actions taken by the central bank to manage and control the money supply in order to achieve economic goals such as price stability and full employment.