M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits ( certificates of deposit of under $100,000).M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits.It is not relevant whether the currency is held inside or outside of the private banking system as reserves. Using the United States dollar as an example, M0 = Federal Reserve notes + US notes + coins. M0: The total of all physical currency including coinage.The money supply is measured using the so-called " monetary aggregates", defined in accordance to their respective level of liquidity. The term "money supply" commonly denotes the total, safe, financial assets that households and businesses can use to make payments or to hold as short-term investment. Governmental authorities, including central banks and other bank regulators, can use various policies, mainly setting short-term interest rates, to influence the amount of broad money created by commercial banks. Money creation occurs when the quantity of monetary aggregates increase. Bank loans issued by commercial banks that practice fractional reserve banking expands the quantity of broad money to more than the original amount of base money issued by the central bank.Ĭentral banks monitor the amount of money in the economy by measuring monetary aggregates (termed broad money), consisting of cash and bank deposits. However, the majority of the money supply is created by the commercial banking system in the form of bank deposits. Central banks can increase the quantity of base money directly, by engaging in open market operations or quantitative easing. Money issued by central banks is termed base money. In most modern economies, money is created by both central banks and commercial banks. Money creation, or money issuance, is the process by which the money supply of a country, or of an economic or monetary region, is increased.
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