Derek decides to forego a major appliance purchase and save the money.He transfers $2,100 from his checking account to his money market mutual fund.As a result of this transfer,
A)both M1 and M2 decrease by $2,100.
B)M1 increases by $2,100 and M2 increases by $2,100.
C)M1 decreases by $2,100 and M2 increases by $2,100.
D)M1 decreases by $2,100 and M2 stays the same.

Question

Quizplus · Accepted Answer

M1 decreases by $2,100 because the money is moved from a checking account (part of M1) to a money market mutual fund, which is not part of M1. M2 stays the same because the money market mutual fund is part of M2, so the total amount in M2 does not change.

Derek Decides to Forego a Major Appliance Purchase and Save