3 ms·

Is M2 is basically how many dollars exist in the world?

• jfengel 4y ago
  It depends on how you define "dollars", which is the point of having multiple M measures. M0 is cash, or something you could turn into dollar bills just by asking. M1 adds in checking accounts, which you can treat as dollars just by writing a check. M2 adds in savings accounts, which you can turn into dollars just by asking, but there might be a delay because they don't have the bills on hand. There are more M's out there, which count ever less liquid forms of dollars. All of them are "dollars". You don't think of yourself as having fewer dollars just because you put them in the bank. But if the bank loans out those dollars, you now count the same money twice: you have it, and somebody else has it. The correct amount at each level is not a matter of how many dollars "exist", but how much trade is being accomplished. The Federal Research tries to set a level that encourages more trade, without flooding the market.