How is M2 measured?

M2, a broader measure of money supply, encompasses not only the components of M1 but also several additional types of assets. These additional assets include savings deposits, which represent funds held in savings accounts at banks and other financial institutions.

Money market funds, another component of M2, are mutual funds that invest in short-term debt securities such as Treasury bills and commercial paper. These funds provide investors with a low-risk way to earn interest on their money while maintaining liquidity.

Certificates of deposit (CDs) are another form of time deposit included in M2. CDs are issued by banks and offer a fixed interest rate for a specified term, typically ranging from a few months to several years. Investors who purchase CDs forgo access to their funds for the duration of the term but earn a higher rate of interest than traditional savings accounts.

Other time deposits, such as savings bonds and other long-term financial instruments, are also counted as part of M2. These investments allow individuals to save for the future while earning interest on their investments.

The Federal Reserve System, the central bank of the United States, plays a critical role in monitoring the money supply. It tracks the amounts of both M1 and M2, which provides valuable insights into the economy's liquidity and overall financial health.