What does M2 mean?

M2 is a crucial economic metric that represents a broader measure of money supply within an economy. It encapsulates not only currency in circulation but also various types of deposits and other liquid assets that are readily accessible for spending.

Economists employ the notation 'M' followed by a number to differentiate between various levels of money supply. This system allows for a nuanced understanding of the availability and velocity of money within an economy.

Specifically, M2 includes all the components of M1, which comprises currency in circulation and demand deposits held by individuals and businesses. In addition, M2 also incorporates savings deposits, small time deposits, and retail money market mutual fund shares.

The inclusion of these additional components in M2 provides a more comprehensive view of the economy's money supply. It reflects the diverse forms in which money can exist and the ease with which individuals and businesses can access it for transactions.

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