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Author Topic: Base Money vs. M1 vs. M2  (Read 803 times)
lyth0s (OP)
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January 04, 2015, 06:28:21 AM
 #1

Can someone quickly give a non-finance guy the layman's definition for these terms?

Base Money: Actual USD in circulation?
M1: Checking/savings account, travelers checks?
M2: M1 + other assets like stocks/bonds?


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January 04, 2015, 06:40:12 AM
 #2

From wikipedia on Money Supply

Quote
M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.[11]
MB: is referred to as the monetary base or total currency.[8] This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply.[12]
M1: Bank reserves are not included in M1.
M2: Represents M1 and "close substitutes" for M1.[13] M2 is a broader classification of money than M1. M2 is a key economic indicator used to forecast inflation.[14]
M3: M2 plus large and long-term deposits. Since 2006, M3 is no longer published by the US central bank.[15] However, there are still estimates produced by various private institutions.
MZM: Money with zero maturity. It measures the supply of financial assets redeemable at par on demand. Velocity of MZM is historically a relatively accurate predictor of inflation.[16][17][18]

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January 04, 2015, 08:31:07 AM
 #3

Unfortunately that doesn't tell me where checking/savings accounts come in to play. Is that M0? What exactly are "bank reserves " that make up M1? Do stocks and bonds fall into M2?

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January 04, 2015, 09:45:40 AM
 #4

Unfortunately that doesn't tell me where checking/savings accounts come in to play. Is that M0? What exactly are "bank reserves " that make up M1? Do stocks and bonds fall into M2?
http://en.wikipedia.org/wiki/Money_supply#United_States

Checks are part of M1
Savings are part of M2
It says that Bank Reserves DO NOT make up M1, they are part of MB.

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