What Is the Money Supply? M1 and M2 Explained

Money supply explained: this money supply economics lesson covers the money supply definition, the total money in an economy at one time, and the two common U.S. measures of money supply, M1 and M2. If you’ve searched “M1 money supply explained” or “M2 money supply explained,” you’ll learn which money supply components count in each and why moving money between accounts changes neither total. I walk through one household’s accounts to get M1 and M2 explained in real numbers ($3,000 and $5,000), then show how a $1,000 bank loan creates new deposit money and a $200 repayment removes it. I also explain why the May 2020 change made reported M1 jump without new money, why vault cash, part of the monetary base, stays out of M1, and how money supply M1, M2, M3 definitions differ by country and over time. Whether you’re studying M1 and M2 money supply, macroeconomics or the money supply monetary economics textbooks cover, this video makes money supply and monetary policy headlines easier to follow.

Chapters
0:00 – What Is the Money Supply?
0:27 – M1 and M2 Explained
1:25 – Counting the Money Supply
2:15 – The 2020 M1 Definition Change
2:42 – How Bank Loans Create Money
3:10 – How Repayment Removes Money
3:41 – Money Supply and Inflation

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*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Ryan O’Connell Finance LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.