Question

M2 would include all of the following except

$5,000 in checkable deposits.
a $15,000 money market deposit.
$2,000 in Traveler's checks.
$200 in your piggy bank.
a $125,000 money market deposit.

If you withdraw $1000 from your savings account so you can go on vacation,

M2 decreases by $1000 and M1 increases by $1000.
M2 decreases by $1000.
M1 increases by $1000 and M2 increases by $1000.
M1 increases by $1000.
there is no immediate change in the money supply.

Answer 1

1. The correct answer is: $200 IN YOUR PIGGY BANK.
In economics, money is classified into two, M1 and M2. M1 refers to liquid cash while M2 refers to near money, cash and checking deposits. The major difference between M1 and M2 is that, M2 is less liquid and is not easily transferable to physical money.
2. The correct answer is this: M2 DECREASES BY $1000 AND M1 INCREASES BY $1000.
If your withdraw any amount of money from your account, that money becomes physical money, which is an example of M1 money. Therefore, withdrawal from one's account reduce M2 while it increases M1.