Video [10.03 min]: Money Supply: M0, M1, and M2

Synopsis: As with all other commodities, like coffee, soybeans, barrels of oil or gold, money too has a “supply”, meaning a fixed or finite available amount at any particular time. What is a little different are the levels of money in an economy, which have their own special names starting with “M”, depending upon what is contained within that certain measurement.

As discussed in Section 15.1, money has a “supply”, meaning a fixed or finite available amount available at any particular time. What is a little different are the levels of money in an economy, which have their own special names starting with “M”, depending upon what is contained within that certain measurement, such as cash, checking accounts or savings deposits. Typically, these levels have to do with how easy it is to access and spend that source of money, which is known as liquidity.

View the Khan Academy video and notice the distinctions made in the video between M0, M1, and M2. Are they different from the way the text describes the money supply? Does it make sense for Sal Khan to add the category M0 to represent the cash in the economy? Why aren’t credit cards considered money based upon what the text and the video explain?