In this article, we cover how to calculate the M2 money supply. In contrast to M1, M2 is a broad measure of money. We have already covered How to calculate the M1 money supply. It includes all the components of M1.
The U.S. Federal Reserve releases a monthly Money stock measure report (H.6 Release). From there, we can get the most recent stats.
How to calculate the M2 money supply
Since the M2 money supply includes M1 as well. So, we start with M1 first.
M1 consists of the following:
- Currency that isn’t with the U.S. Treasury, Depository institutions, and Federal Reserve Banks.
- Demand deposits with commercial banks, and thrift institutions.
- Savings Deposits.
- Other liquid deposits include Negotiable order of withdrawal accounts, Automatic transfer service accounts, Share draft accounts, etc.
M2 = M1 + small-denomination time deposits + balances in retail money market funds (MMFs)
If you go through the H.6 release, it shows that both M1 and M2 have been falling steadily over the past year or so (i.e. 2022/23). Reason: The U.S. Federal Reserve has turned its focus on rising inflation. And, price stability and employment are its two economic goals. So, to maintain price stability it has taken some tough measures. And, that includes raising interest rates, reducing its balance sheet, etc.
In March 2022, M1: $20,664.6 billion and M2: $21,697.7 billion
whereas, in March 2023, M1: $18,942.8 billion and M2: $20,818.1 billion
So, the money supply has decreased. This also suggests that it was a period of slower economic growth. On the other hand, when money supply increases it leads to the opposite. The economy grows at a faster pace during such periods.
