If you withdraw $100 from your checking account and deposit it in your savings account:
A) M1 rises and M2 falls.
B) both M1 and M2 rise.
C) M1 falls by $50 and M2 rises by $50.
D) the monetary base rises.
E) M1 falls and M2 is unchanged.

Question

Quizplus · Accepted Answer

When you withdraw $100 from your checking account, M1 (which includes currency and demand deposits) falls by $100. When you deposit the $100 in your savings account, M1 remains unchanged (since savings accounts are not part of M1) but M2 (which includes M1 along with savings deposits, small time deposits, and retail money market mutual fund shares) may remain unchanged or rise depending on the type of savings account. Therefore, the correct answer is E, as M1 falls and M2 stays the same or rises depending on the type of savings account.

If You Withdraw $100 from Your Checking Account and Deposit