What is an example of M2?

M2 is a comprehensive measure of the money supply in an economy, capturing a broader range of financial instruments than its predecessor, M1. It goes beyond the physical currency in circulation and deposits held in checking accounts, which constitute M1.

The inclusion of savings deposits in M2 is significant as it reflects the amount of money that individuals and businesses have saved for future use or emergencies. These deposits are typically held in savings accounts, which offer interest and are more liquid than long-term investments.

Small-time deposits, such as certificates of deposit (CDs) with a value below $100,000, are also included in M2. CDs are a type of savings instrument that allows depositors to earn a higher interest rate than traditional savings accounts in exchange for locking up their funds for a specified period.

Money market mutual funds, another component of M2, are investment vehicles that pool money from many investors and invest it in short-term, high-quality debt securities. These funds offer investors the opportunity to earn a return while maintaining a high degree of liquidity.

By including these additional financial instruments, M2 provides a more comprehensive view of the total amount of money available for spending and investing in an economy. It is often seen as a better indicator of the economy's potential growth than M1, as it captures a wider range of financial assets that can be easily converted into cash.