M2
Topic: Banking, Credit Creation and Monetary Policy · NCERT: Class 12, Ch 3 "Money and Banking"
Meaning
M2 is a measure of India's money supply. It adds Post Office savings bank deposits to M1:
M2 = M1 + Post Office savings bank deposits
M1 itself = currency with the public + net demand deposits of banks + other deposits with RBI.
M2 is classed as narrow money because it is still highly liquid, meaning it is easy to spend quickly. RBI's four measures, from most liquid to least liquid, are M1, M2, M3 and M4.
Example
Money in savings accounts at village post offices is added to cash and bank demand deposits to get M2. This makes M2 slightly wider than M1.
Don't confuse with
- M3: this adds banks' net time deposits (fixed deposits) to M1 and is broad money. M2 adds only Post Office savings bank deposits.
Related concepts
- Credit creation
- Bank balance sheet
- Bank reserves
- Money multiplier
- Currency deposit ratio
- Reserve deposit ratio
- Bank run
- High-powered money
- Currency in circulation
- Money supply