What is M2 called?

M2 is a significant classification within the realm of money supply. It encompasses a broader range of financial instruments compared to its predecessor, M1. Understanding M2 is crucial for gauging the overall liquidity and economic activity within an economy.

The foundation of M2 lies in M1, which represents the most liquid form of money. M1 comprises cash held outside the private banking system, along with current account deposits. These funds are readily accessible for transactions and expenditures.

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However, M2 extends beyond M1 by incorporating additional financial assets that, though less liquid, still contribute to the overall money supply. These include capital held in savings accounts, which offer interest but require a notice period for withdrawal.

Money market accounts, another component of M2, offer a combination of liquidity and potential returns. Investors can access their funds relatively quickly, making them a popular choice for managing short-term cash flow.