Rather than trying to state a single way of measuring money, economists offer broader definitions of money based on liquidity. Liquidity refers to how quickly a financial asset can be used to buy a good or service. For example, cash is very liquid. You must go to the bank or ATM machine and withdraw that cash to buy your lunch. The Federal Reserve Bank , which is the central bank of the United States, is a bank regulator and is responsible for monetary policy and defines money according to its liquidity.
We will discuss this further later in the module, but for now, there are two definitions of money: M1 and M2 money supply. M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds. M1 money supply includes coins and currency in circulation —the coins and bills that circulate in an economy that are not held by the U.
Treasury, at the Federal Reserve Bank, or in bank vaults. Closely related to currency are checkable deposits, also known as demand deposits. These are the amounts held in checking accounts. Features Questions? Contact us Already a Member? It allows API clients to download millions of rows of historical data, to query our real-time economic calendar, subscribe to updates and receive quotes for currencies, commodities, stocks and bonds.
Click here to contact us. Please Paste this Code in your Website. Compare Money Supply M1 by Country. US Inflation Rate Rises to 6. Mexico Hikes Interest Rate to 5.
So we're going to start things with our Central Bank in the US. This would be the US Federal Reserve. And we're going to focus, just for visualization purposes, on that they're doing it physically. They could also do it electronically. But we're just going to focus on the physical. Liquid means it's very easy to buy and sell those securities in large quantities.
For example, government treasuries is a liquid security, or liquid asset. PEZ dispensers would not be a liquid asset. If I bought a billion dollars worth of PEZ dispensers it would be very hard for me to sell-- one it would be very hard for me to buy a billion dollars worth.
And it would be even probably even harder for me to sell a billion dollars worth in any short or medium timeframe. So this is a security right over here. And the person that they bought the security from decides to deposit it in a bank. They could either directly deposit it in a bank or they could use that money that they got from selling their security to buy things, and the person they bought things from could deposit it in a bank.
But one way or another we can imagine it all gets deposited in a bank. So this is our private bank. I'll call this private bank number one. So now all of these dollars are transferred to private bank number one.
And they are no longer-- the Federal Reserve, or the Central Bank, in the general case, is no longer in possession of them. They've been transferred right over here. And I want to cross these out just so we can keep track of things. Now when they deposit it in private bank number one, they said, well, I need three of these dollars on demand. And I want to write checks against them. So they put three of these dollars in a checking account. There are at three of these dollars a checking account.
And they cannot write checks against that savings account. Now there are special circumstances now, but for simplicity, let's just say that they cannot write checks. There are some that have restricted check writing and things like that now. So this bank says, OK, well, this dollar, I don't have to even have any reserves against it. I could loan out this dollar.
Sep 19, Observation: Sep 19, Units: Billions of Dollars , Seasonally Adjusted. Account Tools Add to data list Get email notification. The velocity of money. FRED Blog. Savings are now more liquid and part of "M1 money".
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