John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,
A) M1 increases by $2,500 and M2 decrease by $2,500.
B) M1 increases by $2,500 and M2 stays the same.
C) M1 and M2 stay the same.
D) M1 decreases by $2,500 and M2 increases by $2,500.

Question

Quizplus · Accepted Answer

Traveler's checks are part of M1, so converting savings (part of M2) to traveler's checks increases M1 by $2,500 while M2 remains unchanged.

John and Jane Decide to Go on a Vacation