What does M2 include that M1 does not?

M2 is a broader measure of the money supply compared to M1. While M1 includes the most liquid forms of money, such as cash and checking account deposits, M2 encompasses M1 plus additional assets that can easily be converted into cash.

The inclusion of savings accounts and money market securities in M2 differentiates it from M1. Savings accounts, while not as liquid as checking accounts, can still be accessed relatively easily and are considered near money. Money market securities, such as money market accounts and short-term Treasury bills, are also part of this broader category because they can be quickly converted into cash or checking deposits.

This understanding of the distinctions between M1 and M2 is crucial for grasping concepts related to the money supply and overall economic liquidity in the context of money and banking.