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Definition of 'M1'

M1 is a measure of the money supply that includes cash and demand deposits. It is the most liquid measure of money and is used to track the amount of money available for spending and investment.

M1 is calculated by adding currency in circulation, demand deposits, and traveler's checks to the central bank. Currency in circulation is the amount of physical cash held by the public, while demand deposits are the funds held in checking accounts. Traveler's checks are a type of check that can be used to make purchases anywhere in the world.

M1 is a useful measure of the money supply because it provides a snapshot of the amount of money that is available for spending and investment. However, it is important to note that M1 does not include all forms of money, such as savings deposits and money market funds.

The Federal Reserve uses M1 to track the money supply and to make monetary policy decisions. The Fed can increase the money supply by buying Treasury securities or other assets, which puts more money into the economy. The Fed can also decrease the money supply by selling Treasury securities or other assets, which takes money out of the economy.

M1 is a key indicator of economic activity and is closely watched by investors and economists. A change in M1 can signal a change in the economy, such as an increase in inflation or a decrease in economic growth.

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