Narrow Vs Broad Money Supply: Understanding M1, M2, And M3 For A Complete Picture Of Liquid Assets In An Economy

The official definition of the money supply that includes coins, paper moeny, traveler’s checks conventional checking accounts, and other checkable deposists at banks and savings institution is called

M1

The official definition of the money supply that includes coins, paper money, traveler’s checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called M1. M1 is a narrow definition of the money supply because it only includes liquid assets that can be easily accessed and used for transactions. M1 is an important measure of the money supply because it represents the most readily available and widely used money in an economy. Other broader measures of the money supply, such as M2 and M3, include additional types of assets, such as savings accounts and time deposits, which are less liquid and less frequently used for transactions.

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