1. What is M1 Money Supply?

M1 is a narrow measure of the money supply that includes physical currency (cash) and demand deposits (checking accounts). It represents the most liquid forms of money that can be readily used for transactions.

2. How Does the Calculator Work?

The calculator uses the M1 money supply formula:

Where:

• \( Cash \) — Physical currency in circulation (coins and paper money)
• \( Demand Deposits \) — Checking accounts and other deposits that can be withdrawn on demand

Explanation: M1 represents the most liquid components of the money supply that can be directly used for transactions.

3. Importance of M1 Calculation

Details: M1 is a key economic indicator used by policymakers to assess the amount of money available for immediate spending in the economy. It helps in monetary policy decisions and economic forecasting.

4. Using the Calculator

Tips: Enter the total amount of cash in circulation and the total amount in demand deposits. Both values should be in the same currency (typically USD for US calculations).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between M1 and M2?
A: M2 includes M1 plus less liquid forms like savings accounts, time deposits under $100,000, and money market funds.

Q2: Why is M1 important?
A: It helps economists and policymakers understand the amount of money available for immediate spending, which affects inflation and economic growth.

Q3: What are demand deposits?
A: These are bank accounts from which deposited funds can be withdrawn at any time without advance notice (e.g., checking accounts).

Q4: How often does M1 change?
A: The Federal Reserve reports M1 weekly, and it can fluctuate based on economic activity and monetary policy.

Q5: Does M1 include credit cards?
A: No, credit cards represent available credit, not money supply. Only actual cash and deposits are included in M1.