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Describe M1, M2, and M3. Which is considered as the Money Supply?

Describe M1, M2, and M3. Which is considered as the Money Supply?

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Answer #1

a) M1, M2 and M3 are measurements of the United States money supply. M1 includes money in circulation plus checkable deposits in banks.

M2 is a calculation of the money supply that includes all elements of M1 as well as near money --  savings deposits (less than $100,000), money market securities, mutual funds, and other time deposits

M3 includes M2 plus large time deposits,  institutional money market funds, short-term repurchase agreements and larger liquid assets.

b) M3 (which includes M1 and M2) is the money supply. M3 is the total value of money available in the economy at a point of time in various forms.

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