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Definition of M2

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M2

Broad measure of money, consisting of M1 plus various deposits that are less substitutable with cash.



Related Terms:

Money supply

M1-A: Currency plus demand deposits
M1-B: M1-A plus other checkable deposits.
m2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.
M3: M-2 plus large time deposits and term repos.
L: M-3 plus other liquid assets.


Real Money Supply

money supply expressed in base-year dollars, calculated by dividing the money supply by a price index.


Accomodating Policy

A monetary policy of matching wage and price increases with money supply increases so that the real money supply does not fall and push the economy into recession.


Deposit Creation

The process whereby the banking system transforms a dollar of reserves into several dollars of money supply.


Goodhart's Law

Whatever measure of the money supply is chosen for application of the monetarist rule will soon begin to misbehave.



Gradualism

A policy of decreasing the rate of growth of the money supply gradually over an extended period of time, so that inflation can adjust with smaller unemployment cost. Contrast with cold-turkey policy.


Monetarism

School of economic thought stressing the importance of the money supply in the economy. Adherents believe that the economy is inherently stable, so that policy is best undertaken through adoption of a policy rule.


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Monetarist Rule

Proposal that the money supply be increased at a steady rate equal approximately to the real rate of growth of the economy. Contrast with discretionary policy.


Monetary Aggregate

Any measure of the economy's money supply.


Monetary policy

Actions taken by the Board of Governors of the Federal Reserve System to influence the
money supply or interest rates.


Money Multiplier

Change in the money supply per change in the money base.


Neutrality of Money

The doctrine that the money supply affects only the price level, with no long-run impact on real variables.


Open-market operation

Purchase or sale of government securities by the monetary authorities to increase or
decrease the domestic money supply.


Quantity Theory of Money

Theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.


Sterilization

Central bank action offsetting money supply changes automatically generated by a balance of payments surplus or deficit under a fixed exchange rate system.


Treasurer's check

A check issued by a bank to make a payment. Treasurer's checks outstanding are counted
as part of a bank's reservable depostits and as part of the money supply.


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Velocity

The number of times during a year that the money supply turns over in supporting that year's economic activity, measured as the ratio of nominal income to the money supply.


Aggregate Supply

Total quantity of goods and services supplied.



Aggregate Supply Curve

Combinations of price level and income for which the labor market is in equilibrium. The short-run aggregate supply curve incorporates information and price/wage inflexibilities in the labor market, whereas the long-run aggregate supply curve does not.


At-the-money

An option is at-the-money if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.


Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call money rate plus a service charge.


Excess Supply

A situation in which supply exceeds demand.


Fiat Money

Fiat money is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. This practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. Even so, governments print it routinely when they need it. The value of fiat money is dependent upon the performance of the economy of the country which issued it. Canada's currency falls into this category.


Floating supply

The amount of securities believed to be available for immediate purchase, that is, in the
hands of dealers and investors wanting to sell.


High-Powered Money

See money base.


Hot money

money that moves across country borders in response to interest rate differences and that moves
away when the interest rate differential disappears.


In-the-money

A put option that has a strike price higher than the underlying futures price, or a call option
with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures
contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in-the-money
by $0.50 an ounce.
Related: put.


Money

Any item that serves as a medium of exchange, a store of value, and a unit of account. See medium of exchange.



Money base

Composed of currency and coins outside the banking system plus liabilities to the deposit money banks.


Money Base

Cash plus deposits of the commercial banks with the central bank.


Money center banks

Banks that raise most of their funds from the domestic and international money markets, relying less on depositors for funds.


Money Laundering

This is the process by which "dirty money" generated by criminal activities is converted through legitimate businesses into assets that cannot be easily traced back to their illegal origins.


Money management

Related: Investment management.


Money manager

Related: Investment manager.


Money market

money markets are for borrowing and lending money for three years or less. The securities in
a money market can be U.S.government bonds, treasury bills and commercial paper from banks and
companies.


Money Market

A market that specializes in trading short-term, low-risk, very liquid
debt securities


money market

Market for short-term financial assets.


Money Market

A financial market in which short-term (maturity of less than a year) debt instruments such as bonds are traded.


Money Market

Financial market in which funds are borrowed or lent for short periods. (The money market is distinguished from the capital market, which is the market for long term funds.)


Money market demand account

An account that pays interest based on short-term interest rates.


Money market fund

A mutual fund that invests only in short term securities, such as bankers' acceptances,
commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at
$1. 00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities
and/or the fund may have private insurance protection.


money market fund

A type of mutual fund that invests primarily in short-term debt securities maturing in one year or less. These include treasury bills, bankers’ acceptances, commercial paper, discount notes and guaranteed investment certficates.


Money market hedge

The use of borrowing and lending transactions in foreign currencies to lock in the
home currency value of a foreign currency transaction.


Money market notes

Publicly traded issues that may be collateralized by mortgages and MBSs.


money order

A guaranteed form of payment in amounts up to and including $5,000. You might request a money order in order to pay for tuition fees at a university or a college, or for a magazine subscription.


Money purchase plan

A defined benefit contribution plan in which the participant contributes some part and
the firm contributes at the same or a different rate. Also called and individual account plan.


Money Rate of Interest

See interest rate, nominal.


Money rate of return

Annual money return as a percentage of asset value.


New money

In a Treasury auction, the amount by which the par value of the securities offered exceeds that of
those maturing.


Out-of-the-money option

A call option is out-of-the-money if the strike price is greater than the market price
of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of
the underlying security.


Precautionary demand (for money)

The need to meet unexpected or extraordinary contingencies with a
buffer stock of cash.


Printing Money

Sale of bonds by the government to the central bank.


Raw material supply agreement

As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.


Speculative demand (for money)

The need for cash to take advantage of investment opportunities that may arise.


Supply

An amount made available for sale, always associated with a given price.


supply-chain management

the cooperative strategic planning,
controlling, and problem solving by a company and
its vendors and customers to conduct efficient and effective
transfers of goods and services within the supply chain


Supply shock

n event that influences production capacity and costs in an economy.


Supply-Side Economics

View that incentives to work, save, and invest play an important role in determining economic activity by affecting the supply side of the economy.


Time value of money

The idea that a dollar today is worth more than a dollar in the future, because the dollar
received today can earn interest up until the time the future dollar is received.


Transaction demand (for money)

The need to accommodate a firm's expected cash transactions.


Visible supply

New muni bond issues scheduled to come to market within the next 30 days.


Monetary Policy

Actions taken by the central bank to change the supply of money and the interest rate and thereby affect economic activity.


Transmission Mechanism

The channels by which a change in the demand or supply of money affects aggregate demand for goods and services.



 

 

 

 

 

 

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