Legal Definitions - M2

Definition: M2 is a measure of the money supply that includes all the items in M1 (cash, checking accounts, and traveler's checks) and adds savings deposits, money market accounts, and other time deposits. It also includes overnight-repurchase agreements.

Example: Let's say you have $100 in your checking account, $50 in cash, and $500 in a savings account. The M2 money supply would be $650 ($100 + $50 + $500).

Explanation: The M2 money supply includes all the items in M1, which are the most liquid forms of money. It also includes savings deposits, money market accounts, and other time deposits, which are less liquid but still considered part of the money supply. Overnight-repurchase agreements are also included in M2 because they are short-term loans that banks use to manage their reserves.