---
title: "Near Money | Principles of Macroeconomics"
description: "Near money is highly liquid assets like savings deposits and money market funds that can quickly become cash and are included in M2 in macroeconomics."
canonical: "https://fiveable.me/principles-macroeconomics/key-terms/money"
type: "key-term"
subject: "Principles of Macroeconomics"
unit: "Unit 14"
---

# Near Money | Principles of Macroeconomics

## Definition

Near money is a macroeconomics term for assets that are not cash but can be quickly converted into cash, like savings deposits and money market funds. They count in broader money measures such as M2.

## What It Is

Near money is the stuff you can turn into cash fast in Principles of Macroeconomics, but that is not itself currency. Think savings deposits, money market mutual funds, certificates of deposit, and other assets that sit close to cash in how easily you can spend them.

The big idea is liquidity. Cash is the most liquid asset because you can use it right away for a purchase. Near money is slightly less liquid, because you usually have to transfer, withdraw, redeem, or mature the asset before it becomes spendable. That delay is small, which is why macroeconomists treat these assets as close substitutes for money.

This is why near money matters when economists measure the money supply. The narrow measure, M1, focuses on the most spendable money such as currency and checkable deposits. Broader measures like M2 add near money, because households and firms often keep wealth in forms that can quickly move into checking accounts or cash when they need to pay bills or make purchases.

A good way to picture it is this: if you have money in a savings deposit, you cannot swipe it as directly as cash in your wallet, but you can transfer it fast enough that it affects how much spending power you really have. That is the whole point of near money, it captures liquid wealth that can support spending even though it is not literal currency.

Near money also helps explain why the money supply is not just about paper bills. In real life, people store purchasing power in bank accounts and short-term financial assets because they may want a little return while still staying close to cash. That balance between safety, liquidity, and return is one of the main themes behind money in macroeconomics.

## Why It Matters

Near money shows up any time macroeconomics looks at how much spending power exists in the economy. If you only counted currency, you would miss a huge amount of liquid wealth sitting in bank deposits and money market funds. That would make measures of the money supply too narrow and would distort how you think about inflation, interest rates, and consumer spending.

It also connects directly to monetary policy. When the Federal Reserve watches M1 and M2, it is trying to see how much money and near money are available for spending or rapid conversion into spending. A rise in near money can mean households and firms are holding funds that could quickly enter circulation, which matters when policymakers think about future demand.

Near money also gives you a cleaner way to compare financial assets. It sits between cash and long-term investments, so it is a useful category for questions about liquidity preference, banking, and the tradeoff between convenience and return. In macro class, that makes it a bridge concept, not just a vocabulary word.

## Connections

### Money Supply

Near money is part of the broader money supply picture because it shows how much spendable wealth exists beyond cash. When you study money supply, you are not just counting bills and coins, you are also looking at liquid assets that can quickly become spending power. That is why macroeconomists use measures like M2.

### Liquidity

Liquidity is the reason near money gets its name. The more liquid an asset is, the faster you can use it for transactions without losing value or waiting a long time. Near money is less liquid than currency but much more liquid than assets like stocks or long-term bonds.

### M1 and M2

M1 is the narrow money measure, while M2 is broader because it includes near money. If a question asks why one asset is counted in M2 but not M1, the answer usually comes down to how quickly you can access and spend it. Near money is the extra layer that makes M2 more comprehensive.

### [Money Market Mutual Funds](/principles-macroeconomics/key-terms/money-market-mutual-funds)

Money market mutual funds are a common example of near money because they are designed to be safe and fairly liquid, with a quick path to cash. In macroeconomics, they help show that financial assets can behave almost like money even when they are not official currency.

## On the AP Exam

A quiz item or short-answer question may ask you to classify an asset as money, near money, or neither. Your job is to look at liquidity first: can the asset be used immediately, or does it need to be redeemed, withdrawn, or sold first? If it is highly liquid but not direct currency, near money is usually the right label.

You may also need to explain why a savings deposit belongs in M2 but not M1, or compare cash with a short-term financial asset in terms of spending power. In problem sets and class discussions, the term often shows up when you interpret changes in the money supply or discuss how households store wealth while keeping it accessible.

## Near Money vs Money Supply

Near money is not the whole money supply, it is one part of the broader picture. Money supply is the total amount of money and money-like assets circulating in the economy, while near money refers to specific liquid assets that are close to cash. If a question asks about the category of an asset, use near money. If it asks about the total measured amount, think money supply.

## Key Takeaways

- Near money is a macroeconomics term for liquid assets that are not cash but can be turned into cash quickly.
- Savings deposits, money market mutual funds, and short-term government securities are common examples of near money.
- Near money is less spendable than currency, but it still matters because people can move it into cash or checking accounts fast.
- Broader money measures like M2 include near money, which gives economists a fuller picture of liquidity in the economy.
- When you see near money in a problem, think about how quickly the asset can be used for transactions and whether it belongs in M1 or M2.

## FAQs

### What is near money in Principles of Macroeconomics?

Near money is a liquid asset that is not cash but can be converted into cash quickly. In macroeconomics, it includes things like savings deposits and money market funds, which are close enough to cash to matter when measuring liquidity.

### What is the difference between money and near money?

Money, especially currency and checkable deposits, can be used right away for payments. Near money cannot usually be spent immediately, but it can be converted into cash fast enough that economists treat it as money-like. The difference comes down to liquidity and how quickly the asset can be used in transactions.

### Why is near money included in M2 but not M1?

M1 only includes the most liquid forms of money, such as currency and checkable deposits. M2 adds near money because those assets are still close to spendable cash, even if you have to move them first. That makes M2 a broader measure of the money available in the economy.

### Is a savings account near money?

Yes, a savings deposit is a classic example of near money. You cannot usually spend it directly like cash, but you can transfer or withdraw it quickly. That is why it is treated as highly liquid in macroeconomics.

## Related Study Guides

- [14.2 Measuring Money: Currency, M1, and M2](/principles-macroeconomics/unit-14/2-measuring-money-currency-m1-m2/study-guide/8nwGW8NUmeMdcY6q)

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