
Economic Indicators
Money Supply Indicator
KEY LESSONS
Cash, bank deposits, and other forms of deposits that are easily converted to cash, including CDs, are all included in the money supply indicator M2.
M1 solely represents an estimate of deposits to checking and cash accounts.
The M2 and M1 statistics are extensively watched each week as measures of the total money supply. Inflation can be detected by figures that are growing too quickly.
All of the aforementioned plus sizable institutional cash deposits are included in the M3 measure of the money supply. The M3 is released four times a year.
In M1, M2, or M3, gold is not taken into account. Today, gold is no longer a widely accepted form of payment.
More money is spent when there is more money available. A bit extra may be beneficial. The likelihood of inflation can rise far more. Because of this, the Federal Reserve limits the money supply whenever inflation makes a bad appearance. In order to keep inflation under control, the Fed is reducing expenditures.
Is M2 an Economic Leading Indicator?
M2 is thought to be a trustworthy Leading indicator of inflation, making it one of the top economic indicators. Some economists believe that M3 is an even more accurate indicator of inflation. This is issued every three months rather than every month and contains information on the sizable liquid assets that financial institutions own.
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