Bank Money Tutorial

An economy's money supply is often divided into four parts — M0, M1, M2, and M3. The M1 money supply is a measurement of the total amount of currency in circulation. It consists of M0, which is paper currency and coins, plus publicly held checking accounts. Other forms of M1 currency are: traveler's checks, automatic transfer service accounts, and credit union accounts. Economists often use the M1 money supply measurement as an indicator of inflation.

In the US, M1 is money that is issued to commercial banks by the US Federal Reserve for deposits and loans. The total amount of money in circulation often affects the flow of economic activity. M1 is generally used in conjunction with the M2 and M3 money supply measurements by economists to gauge how much money is in circulation. M2 consists of M1 plus savings accounts. The M3 money supply consists of M2 plus large commercial deposits.

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