What is the significance of M2 in economic analysis?

M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus other liquid assets such as savings deposits, time deposits, and money market funds. It is a broader measure of the money supply in an economy and provides insights into the availability of money for spending and investing. M2 is used as an indicator of possible increases or decreases in inflation levels, as it reflects the amount of money circulating in the economy. Changes in M2 can indicate how the economy is performing and provide insights into future economic activity. Therefore, M2 is an important variable for policymakers and economists to monitor and analyze.