What does broad money include?

Broad money, also known as M2, is a measure of the total money supply in an economy. It includes all the components of narrow money (M1) such as physical currency, demand deposits, and other liquid assets, as well as additional components such as savings deposits, time deposits, and money market mutual funds. Savings deposits are accounts that typically earn interest and have no specific maturity date, allowing depositors to withdraw funds at any time. Time deposits, on the other hand, have a specific maturity date and typically earn higher interest rates than savings deposits, but they may impose penalties for early withdrawal. Money market mutual funds are investment funds that invest in short-term, high-quality, low-risk debt securities, providing investors with a way to earn a return on their cash while maintaining liquidity. In addition to these components, broad money also includes other liquid assets that are easily convertible into cash, such as certain short-term securities and certificates of deposit. These assets play a crucial role in the functioning of the financial system and the overall economy, as they provide the liquidity necessary for transactions and economic activity. The measurement of broad money is important for policymakers and economists as it provides insights into the overall liquidity and financial stability of an economy. Changes in the level of broad money can impact inflation, interest rates, and overall economic growth, making it a key indicator for monetary policy and economic analysis.