What does M2 mean in business?

The composition of M2 encompasses various forms of liquid assets, including cash, checking deposits, savings deposits, and money market funds. This broad scope ensures that M2 accurately reflects the total amount of money circulating in the economy.

Economists assign numerical suffixes to the letter M to distinguish between different monetary aggregates. M2, specifically, includes a larger subset of financial instruments compared to its predecessor, M1.

M1, on the other hand, typically comprises only the most liquid forms of money, such as currency and demand deposits. By contrast, M2 extends this definition to encompass other forms of near-cash assets that are highly accessible for spending or investing.

The inclusion of these additional assets in M2 makes it a more comprehensive measure of the money supply. It captures not just the cash and checking account balances but also the savings and money market funds that individuals and businesses might draw upon for transactions.

M2 is a significant indicator utilized by economists to gauge the money supply within an economy. It represents a comprehensive measure of the monetary assets that are readily available for spending or investment.