Question

Suppose she withdraws $500 in cash from her savings account. by what dollar amount does the country's money supply (m1 and m2) change as a result of jane's actions?

Answer 1

M1 will increase by $500 and M2 will remain unchanged.

Step-by-step explanation:

The money supply is made up of:

M1: includes all coins and bills in circulation, travelers' checks and checking accounts

M2: includes M1 + short term bank deposits and 24 hour money market funds

M3: includes M2 + long term deposits and money market funds with more than 24 hour maturity