three measures of the money supply as defined by the Federal Reserve Board:
M1 is the narrowest measure of money supply. It includes currency in circulation, checking account balances, NOW accounts and share draft accounts at credit unions, and travelers' checks. M1 represents all money that can be spent or readily converted to cash for immediate spending.
M2 includes everything in M1 plus savings accounts and time deposits such as CDs, money market deposit accounts, and repurchase agreements.
M3 includes everything in M2 plus large CDs and money market fund balances held by institutions. M3 is the broadest measure of money supply tracked by the Fed.
Federal Reserve policymakers carefully watch the growth rate of all three money supply measures, but especially M2, as key indicators of economic growth and the potential for inflation. Most economists maintain that most economic growth and inflation is determined by the rate of growth in the money supply.
