When cash is withdrawn from a checkable-deposit account at a bank,
A) the money supply M1 increases.
B) the money supply M1 decreases.
C) the money supply M1 does not change, but its composition changes.
D) the composition of money supply M1 does not change.

Question

Quizplus · Accepted Answer

The money supply M1 includes both cash and checkable deposits. When cash is withdrawn from a checkable-deposit account, the total amount of M1 remains the same, but the composition shifts from checkable deposits to currency in circulation.

When Cash Is Withdrawn from a Checkable-Deposit Account at a Bank