Question

Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?
A) M1 and M2 are both unchanged.
B) M1 falls by $1,000, and M2 rises by $1,000.
C) M1 is unchanged, and M2 rises by $1,000.
D) M1 falls by $1,000, and M2 is unchanged.

Answer 1

Answer:

D) M1 falls by $1,000, and M2 is unchanged.

Explanation:

since checking account comes under M1, a transfer would result in fail, Therefore, a transfer would result in a change in M1 but shows no effect on M2