M0, M1, M2, M3: An Overview
M0, M1, M2, and M3 are terms used to describe different measures of the money supply in an economy. The money supply is the total amount of money available in an economy at a given time. These measures are used to track the amount of money in circulation and to help inform economic policy decisions.
M0, also known as “narrow money,” is the most basic measure of the money supply. It includes physical currency, coins, and notes in circulation, as well as money held in commercial banks’ reserves. M1, also known as “near money,” is a broader measure of the money supply. It includes M0, plus travelers’ checks, demand deposits, and other checkable deposits. M2 is an even broader measure of the money supply. It includes M1, plus savings deposits, money market mutual funds, and other time deposits. M3 is the broadest measure of the money supply. It includes M2, plus large time deposits, institutional money market funds, and repurchase agreements.
History of the Term
The concept of the money supply has been around since the early days of economics. The term “M0” was first used in the 1950s by the Bank of England to refer to the amount of physical currency in circulation. The other measures of the money supply, M1, M2, and M3, were developed in the 1970s by the Federal Reserve Bank of the United States. The Federal Reserve Bank uses these measures to track the amount of money in circulation and to inform its economic policy decisions.
Comparison Table
| Measure | Components |
|---|---|
| M0 | Physical currency, coins, notes, commercial bank reserves |
| M1 | M0 + travelers’ checks, demand deposits, checkable deposits |
| M2 | M1 + savings deposits, money market mutual funds, time deposits |
| M3 | M2 + large time deposits, institutional money market funds, repurchase agreements |
Summary
M0, M1, M2, and M3 are terms used to describe different measures of the money supply in an economy. M0 is the most basic measure, while M3 is the broadest measure. These measures are used to track the amount of money in circulation and to inform economic policy decisions. For more information about the money supply and its measures, visit the websites of the Bank of England and the Federal Reserve Bank of the United States.
See Also
- Money Supply
- Central Bank
- Monetary Policy
- Inflation
- Deflation
- Interest Rates
- Currency
- Exchange Rates
- Gross Domestic Product
- Economic Growth
