Question

If your parents withdraw $125,000 from a money market deposit account so they can put a down payment on a house,

M1 decreases.
M2 decreases.
M3 increases.
M2 decreases and M1 increases.
M3 increases and M2 decreases.

Answer 1

M2 decreases and M1 increases.

Step-by-step explanation:

M1 and M2 are measures of money.

M1 is the narrowest definition of money. It includes currency, travellers check, demand deposit and other checkable deposits.

M2 includes M1 , small denomination time deposit, money market deposit and other assets that can easily be changed into cash easily and at a very little cost.

M3 includes M2, large domination time deposit and less liquid assets.

If $125,000 is withdrawn from the money market funds ,m2 reduces because money market fund is a component of m2.

M1 increases because $125,000 is converted to cash.

I hope my answer helps you.