Question

If Veronica withdraws​ $1,500 from her savings account and deposits it in her checking​ account, then M1 will​ ________ and M2 will​ ________.

Answer 1

Answer: Increase and Unchanged

Explanation:

Given that,

Veronica withdraws = $1,500  from her savings account

then deposit this amount into her checking account.

M1 contains:

M1 = currency with public + checkable deposits + other deposits with RBI

M2 Contains:

M2 = M1 + post office savings account

Veronica withdraws $1,500 from savings account, so M2 decreases by $1500. Then, she deposited this amount into her checking account as a result M1 increases by $1,500 and M1 is a component of M2, so M2 also increases by $1500.

The conclusion of this transaction is that M1 increases by $1500 and there is no change in M2.