M1 - Narrow Money
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M1, in terms of the money supply, represents a broader measure than and includes the most liquid forms of money readily available for spending and transactions. M1 is often referred to as "narrow money" and encompasses assets that can be quickly converted into cash or used for making payments. It serves as an important indicator of an economy's liquidity and is closely monitored by central banks and policymakers.
Key components of M1 typically include:
Physical Currency (): M1 includes the currency in circulation, which is the same as M0, encompassing coins and paper money held by the public.
Demand Deposits (Checking Accounts): Demand deposits, commonly known as checking accounts, are included in M1. These are deposit accounts at banks and other financial institutions that allow depositors to withdraw funds on-demand, typically through checks or electronic transfers. They are highly liquid and readily accessible.
Other Checkable Deposits: Some other types of deposit accounts that offer check-writing privileges, such as negotiable order of withdrawal (NOW) accounts and share drafts at credit unions, may also be included in M1.
Traveler's Checks: M1 may include traveler's checks issued by banks or financial institutions. These checks are pre-paid and can be used as a form of currency while providing security against loss or theft.
Deposits at Financial Institutions: M1 encompasses funds held in accounts at financial institutions, such as savings banks or savings and loan associations, that are readily accessible for spending. These accounts may offer limited check-writing or transfer capabilities.
M1 excludes less liquid forms of money, such as time deposits (certificates of deposit or CDs) and savings accounts, which are included in broader measures like and . The distinction between and M1 is that M0 only includes physical currency held by the public, while M1 adds the most liquid and easily accessible forms of deposit money.
M1 is used by central banks and economists to assess the immediate availability of funds for spending and to monitor changes in the money supply that can impact economic conditions. It is considered an essential component of the overall money stock within an economy and plays a role in monetary policy analysis and decision-making.
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