Money supplyMo → M1→M2→M3 → LIn moving down the scale, the less liquidity there is●The more time it takes to change into money- M1consists of cash and assets that can be directly converted into cash. The term demand depositsrefers to money in checking accounts- represents money that people can gain access to easily and immediately to pay for goods andservices- liquidity: ability to be used as, or directly converted into, cash- M2- consists of M1 assets plus funds that cannot be easily converted into cash- additional M2 funds cannot be used as cash directly but can be converted to cash easily- “near money”- M1 + certificates of deposit + savings*In talking of money supply (M2)* coins notes and checking accounts (M1)The Banking Institutions- commercial banks- (deposits, loans, services for business and since 1999 financial services like sellinginvestments such as stocks).- Many state Banks are member of the Federal Reserve System. INsuresed by the FDIC- chartered which means they are given the right to exist by the state gov. Or the fedgov.-immediately ensured by the Fed (and the FDIC)- savings and loan associations- similar to Savings Banks- Mission is to support the construction, purchase, and improvement of home- Savings and loan associations are also called thrifts because they originally enabled"thrifty" working-class people - that is, people who were careful with their money - save