M2 money supply definition

M2 money supply is a broad measure of the money available in an economy. It captures highly liquid money alongside near-money assets that convert into cash fairly quickly.

M2 usually counts currency in circulation, demand deposits, savings deposits, small-denomination time deposits, and retail money market funds. Central banks and economists track it to read liquidity, credit conditions, and inflation pressure, because rapid M2 growth can point to easier financial conditions and slower growth to tighter ones.

M2 is wider than M1. M1 counts only the most liquid money, such as cash and demand deposits, while M2 adds savings deposits and short-term deposit products that are slightly less accessible. Broader measures still, such as M3, add large institutional deposits on top of M2.

M2 money supply Example

An economy holds money in three places:

- Cash and demand deposits: USD 500 billion - Savings deposits: USD 1.2 trillion - Small time deposits and retail money market funds: USD 300 billion

The M2 money supply is the sum:

USD 500 billion + USD 1.2 trillion + USD 300 billion = USD 2 trillion

The economy has an M2 money supply of USD 2 trillion.