M2 money supply is a key measure of the money supply that includes:
1. M1 (most liquid money):
Physical currency (coins and notes)
Demand deposits (checking accounts)
Other liquid deposits (savings that can be quickly accessed)
2. Less liquid components:
Savings accounts, Time deposits (under $100,000) like certificates of deposit (CDs) Retail money market mutual fund balances
Why it matters:
M2 gives a broader view of the total money circulating in the economy than M1. It's used by central banks and economists to track inflation, guide interest rate policies, and understand economic health.
(will explain relationship of M2 with financial markets in next post)