What is the main difference between M1 and M2 money supply? (2024)

What is the main difference between M1 and M2 money supply?

M1 money supply includes those monies that are very liquid such as cash, checkable (demand) deposits, and traveler's checks. M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.

The Relationship between M1 and M2 Money. M1 and M2 money have several definitions, ranging from narrow to broad. M1 = coins and currency in circulation + checkable (demand) deposit + traveler's checks. M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.

M1 includes currency, traveler's checks, and money in checkable accounts, whereas M2 includes M1 plus savings deposits, small-denomination time deposits, and money market mutual funds.

M2 represents currency outside banks plus bank personal deposits, banks non personal demand and notice deposits, less interbank deposits plus continuity adjustments. M2+ represents M2 plus deposits at trust and mortgage loan companies and at government saving institutions, deposits and shares at credit unions, etc.

M1 is a narrow measure of the money supply that includes currency, demand deposits, and other liquid deposits, including savings deposits. M1 does not include financial assets, such as bonds. The M1 money supply was a much more constrictive measurement of the money supply compared to the M2 or M3 calculation.

M1 represents money that people can gain access to easily and immediately to pay for goods and services (such as cash-on-hand). M2 consists of all the assets in M1 plus several additional assets (such as savings deposits in banks).

As you might have guessed, performance is the main difference between the M1 and M2 chips. For example, the M2 CPU is 18% faster than the M1, the GPU is 35% faster, and the neural engine is 40% faster. There are other improvements as well.

M2 is a measure of the money supply that includes cash, checking deposits, and other deposits readily convertible to cash, such as CDs. M1 is an estimate of cash, checking, and savings account deposits only. The weekly M2 and M1 numbers are closely monitored as indicators of the overall money supply.

The correct statement that best summarizes the difference between the M-1 and M-2 definitions of the money supply is Option C. The M-2 definition includes everything in the M-1 definition, plus additional components such as money in savings accounts, money market accounts, and certificates of deposit.

An important difference between the M1 and M2 money supply aggregates is that all money within M1 can be immediately used as a medium of exchange, whereas some types of money within M2 cannot be immediately used as a medium of exchange.

Why is M2 money supply important?

Importance of M2 Money Supply: M2 money supply is a key indicator for policymakers and economists to monitor the availability of money within an economy. It provides insights into the potential inflationary pressures, economic activity, and the overall health of financial markets.

M2 is a broader classification than M1 because it includes assets which are still highly liquid but that are not exclusively cash. M2 is mostly used as a classification for money supply in the eurozone and America; in the UK, the official designations are limited to M0 and M4.

M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds.

The reason behind the fall in M2 is straightforward.

The Fed's reduction in its own balance sheet reduces the amount of money supply as the central bank is no longer reinvesting the proceeds from its matured bonds back into the system.

M1: Bank reserves are not included in M1. M2: Represents M1 and "close substitutes" for M1. M2 is a broader classification of money than M1. M3: M2 plus large and long-term deposits.

The above two aspects of the public money are called Narrow Money, captioned as M1 by the RBI. Thus, M1 equals to the sum of currency with the public and demand deposits of the public in Banks. Post office savings deposits, when included with M1, as defined above, it becomes M2.

The M-1 money supply consists only of currency (coins and paper money) that circulates in our economy, while the M-2 includes traveler's checks and funds in demand deposits.

Basic M1 vs M2 Differences

Starting with the most basic chips, the M1 and M2, there are few differences overall, with both chips having the same amount of CPU cores. The M2, however, has two additional Graphics cores, which leads to faster graphics performance while playing games or editing videos.

While M1 is used to measure the amount of money in circulation for transactions, M2 is used to measure the amount of money in the economy that is available for spending and investment. Understanding M2 money supply is essential for economists, policymakers, and investors.

The M2 will be slightly faster in single-core but the M1 Pro/Max is faster in multi-core. The MBP has more features and more ports, plus you can configure with more RAM.

How much more powerful is M2 than M1?

M2 Chip vs M1 Chip: Differences in the graphics

Here there is a big difference; the M2 Chip has a 35% more powerful GPU which means you, for example, can edit videos more quickly. The M2 Chip is available with two graphics configurations: 8 or 10 cores.

According to Apple, the M2 offers a 18% higher CPU performance at the same power consumption level compared to the Apple M1. In our tests, the MacBook Pro 13 with active cooling was able to reach the 18% in Geekbench Multi. In other benchmarks we measured 12 to 15% gains compared to the M1.

The Relationship between M1 and M2 Money. M1 and M2 money are the two mostly commonly used definitions of money. M1 = coins and currency in circulation + checkable (demand) deposit + traveler's checks + saving deposits. M2 = M1 + money market funds + certificates of deposit + other time deposits.

Final answer:

The only incorrect statement is 'M1 is considered to be more liquid than M2'. In fact, M1 is more liquid than M2 as the latter includes less liquid financial tools such as savings deposits. The money supply is influenced by the Federal Reserve and can impact a country's economy.

M2 money supply is the money supply that includes currency, checking accounts in banks, traveler's checks, savings deposits, money market funds, and certificates of deposit.