Money Supply: M0, M1, M2
Understand how economists measure money and how central banks track monetary expansion
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Interest Rates Explained
Measuring the Money Supply
How much money exists in the economy? It's not a simple question. The dollar bills in your wallet are money—but what about your checking account? Your savings account? Your money market fund? Economists use money supply aggregates (M0, M1, M2, M3) to categorize money by liquidity.
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Why This Matters
Central banks monitor money supply to gauge economic health and guide policy. Rapid M2 growth often precedes inflation. Tracking M1 reveals transaction activity. Understanding these metrics helps you interpret Fed decisions and economic cycles.
What You'll Master
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Money Aggregates
M0, M1, M2, M3 definitions
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Money Multiplier
How banks create money
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Velocity of Money
Economic activity measure
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Historical Trends
QE impact on supply