how to calculate m1
the m1 money supply is composed of federal reserve notes otherwise known as bills or paper money and coins that are in circulation outside of the federal reserve banks and the vaults of depository institutions paper money is the most significant component of a nation s money supply m1 also includes traveler s checks of non bank issuers demand deposits and other checkable deposits ocds including now accounts at depository institutions and credit union share draft accounts for most central banks m1 almost always includes money in circulation and readily cashable instruments but there are slight variations in the definition across the world for example m1 in the eurozone also includes overnight deposits 9 in australia it includes current deposits from the private non bank sector 10 the united kingdom however does not use m0 or m1 class of money supply any longer its primary measure is m4 or broad money also known as the money supply 111213m2 and m3 include all of the components of m1 plus additional forms of money including money market accounts savings accounts and institutional funds with significant balances money supply and the u s economyfor periods of time measurement of the money supply indicated a close relationship between money supply and some economic variables such as the gross domestic product gdp inflation and price levels economists such as milton friedman argued in support of the theory that the money supply is intertwined with all of these variables 14however in the past several decades the relationship between some measurements of the money supply and other primary economic variables has been uncertain at best thus the significance of the money supply acting as a guide for the conduct of monetary policy in the united states has substantially lessened 3m1 vs m2 vs m3the m1 money supply includes all physical currency traveler s checks demand deposits and other checkable deposits e g checking accounts while the m1 is a measure of all the most liquid forms of money in an economy other forms of money supply are slightly different the m2 money supply is a broader measure of money supply that includes all components of m1 as well as near money m2 includes savings deposits money market securities and other time deposits which are less liquid and not as suitable as exchange mediums although many elements of the m2 money supply can can still be quickly converted into cash or checking deposits they are not as instant as the components of the m1 money supply on the other hand the m3 money supply is an even broader measure of the money supply that includes all components of m1 and m2 in addition it includes all forms of savings deposits money market deposits time deposits in amounts of less than 100 000 and institutional money market funds m3 is arguably the most comprehensive measure of the money supply compared to the other calculated amounts of money supply as it includes a wider range of savings and investments that can be readily converted into cash 