M2
Definition
M2 represents a broader measure of money supply than M1. It includes all components of M1 plus savings deposits, time deposits (certificates of deposit), and retail money market funds.
Analogy
Imagine M2 as an expanded version of your financial resources. It's like having not only cash in hand but also additional funds saved up in various accounts that are readily accessible when needed.
Related terms
M3: M3 is an even broader measure of money supply that includes all components of both M1 and M2 plus large time deposits held by institutional investors.
Liquidity: Liquidity refers to how easily an asset can be converted into cash without significant loss in value. Assets with high liquidity can be quickly turned into spendable currency.
Fractional Reserve Banking System: Fractional reserve banking system is a banking system where banks are required to keep only a fraction (a certain percentage) of their customers' deposits as reserves, allowing them to lend out the rest.
"M2" appears in:
Additional resources (1)
Resources
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.