M 1 reflects the actual purchasing power in the economy; M2 reflects the actual and potential purchasing power. If the growth rate of M 1 is fast, the consumption and terminal market will be active; If M2 grows faster, the investment and intermediary market will be active. ?

Central banks and commercial banks can judge monetary policy accordingly. M2 is too high and M 1 is too low, indicating that investment is overheated, demand is not strong, and there is a crisis risk; M 1 is too high, and M2 is too low, indicating that there is a strong demand and insufficient investment, and there is a risk of price increase.

2. Different types of deposits:

M 1 includes cash (banknotes or tokens), traveler's checks, current deposits or other checking deposits. These currencies can be directly used as a medium of exchange for various transactions and payments.

M2 is based on M 1 plus other savings deposits (such as bank time deposits, money market fund balances and deposits from other financial institutions). The amount of money in circulation is also called money stock.

3. By definition:

China's current currency classification is:

Narrow money (m 1)= M0+)= M0+ unit demand deposit paid by cheque.

Broad money (m2)= m 1+ resident savings deposit+unit time deposit+other unit deposit+customer deposit of securities company.

Extended data:

Factors affecting the values of M 1 and M2:

1 For example, a booming stock market will affect the numerical change of M 1, and many people will put time deposits and some assets into the stock market, thus accelerating the rise of M 1.

2. If the growth rate of M 1 is less than M2 for a long time, it means that the investment opportunities available in the future are decreasing, and enterprises and residents choose to deposit funds in banks regularly, and the profitability of micro-individuals will decline.

3. If the growth rate of M 1 is greater than M2 for a long time, it means that the economic prosperity is rising, the expansion is rapid, the transactions between enterprises and residents are active, and the profitability of micro-subjects is strong.

4. The part with strong liquidity in the currency composition becomes the part with weak liquidity, which will affect investment and economic growth.

In a word, M 1 and M2 should maintain coordinated growth, and neither of them is conducive to the development of the national economy.

5.M2 reflects the change of total social demand and the pressure of inflation in the future. What we usually call money supply mainly refers to M2. There are two ways to put money: foreign exchange and bank credit. The faster they are launched, the greater the growth rate of M2. By analyzing the change of growth rate of M 1 and M2, we can understand the macroeconomic operation.

References:

Baidu Encyclopedia -M2

Baidu encyclopedia -M 1