Why are the different measures of the money supply important?

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The various definitions of the money supply (things like M1 and M2) are important because they tell us about the amount of money that is in the economy.  It is important to have different measures because they tell us about the amount of money in different levels of liquidity.

We need to know about the amount of money in the economy so that central banks can have an understanding of, for example, what to do to the money supply in order to keep the economy stable.  Different measures of the money supply are important, then, because they allow the central bank to know how much of the money is liquid and could therefore be easily used in economic transactions.

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