What is the difference in the money supply indicators the Fed releases? (July 29, 2000)
There are three measures: M1, M2, and M3. M1 is the sum of all the currency in circulation plus the total of all demand (checking) accounts. M2 includes M1 plus savings accounts, time deposits (e.g., CD's) under $100,000, money market fund shares, and a overnight Eurodollars and overnight repurchase agreements between commercial banks. M3 consists of M1, M2 and time deposits of more than $100,000 and term repurchase agreements.
M1 can be called the real driver of the economy in the U.S., as two-thirds of the U.S. economy is consumer consumption. It takes money to consume, and M1 is basic money that is spent in consumption. Not many CD's over $100,000 are cracked open to buy new clothes. As noted in the market summary, M1 is the only measure that shrank over the past week. That matches the falling consumption at the retail/consumer level. It continues to dry up, and it is hard for an economy to surge when that happens.
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