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3 years ago

What is the effect on the money supply when you transfer $150,000 from your checking account to your savings account?

Business

1 answer:

Lina20 [59]3 years ago

3 0

Answer:

Decrease in M1; No effect on M2

Explanation:

Monetary aggregates is as follows:

M1 consists of:

= Currency with the public + Checking/Demand deposits + Other deposits with the RBI

M2 consists of:

= M1 + Post office savings account deposits

Effect on M1:

If a person transfer money from checking account to savings account, so there is a fall in M1 because the amount in checking account is reduced.

Effect on M2:

If a person transfer money from checking account to savings account, then there is a fall in checking account and at the same time there is a rise in the savings account. M1 is a component of M2.

Therefore, there will be no effect on M2.

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Answer:

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