Assume that you are interested in earning some return on the idle balances you usually keep in your checking account and decide

Question

3 years ago

7

to buy some money market mutual funds shares by writing a check. Comment on the effect of your action (with everything else the same) on M1 and M2

1 answer:

professor190 [17] · Answer 1 · 2022-01-11T02:55:16+03:00

Answer:

By writing that check and investing in mutual funds, M1 will decrease, but M2 will remain the same.

Explanation:

M1 includes currency and coin, demand deposits, travelers' checks, check accounts, and negotiable order of withdrawal (NOW) accounts.

M2 includes all M1 + savings deposits, money market securities, mutual funds, and other time deposits.