Series 7: 9.2.1.1. Monetary Aggregates

9.2.1.1. Monetary Aggregates

In the U.S., there are three different measures of the money supply: M1, M2, and M3. These are referred to as monetary aggregates, and they are used by the Federal Reserve to measure the effects of monetary policy. Economists and the Fed also use monetary aggregates to judge how fast the money supply is growing. If the money supply is growing too fast, it could be an indication of future inflation. The Fed may attempt to thwart the potential inflation by reducing the supply of money and raising interest rates.

M1 is physical money, which includes notes and coins in circulation, as