If Veronica withdraws $1,500 from her checking account and deposits it in her savings account, then M1 will ________ and M2 will ________.
A) decrease; increase
B) increase; not change
C) decrease; not change
D) not change; not change

Question

Quizplus · Accepted Answer

M1 includes forms of money that are readily available for spending, such as cash and checking account balances. When Veronica transfers money from her checking account to her savings account, the total amount of M1 decreases because checking accounts are part of M1, while savings accounts are not. M2 includes all of M1 plus savings accounts and other types of accounts that are not as readily accessible as checking accounts. Since the money is still within the scope of M2 (moving from one component of M2 to another), the total amount of M2 does not change.

If Veronica Withdraws $1,500 from Her Checking Account and Deposits