Question

Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank.

A. Both M1 and M2 were reduced by $5,000.
B. M1 went down by $5,000, but M2 was unchanged.
C. Neither M1 nor M2 changed because the transfer was done at the same bank.
D. M1 and M2 both rose by $5,000.

Answer 1

Transferring money from a checking account to a savings account within the same bank does not change M1 or M2, keeping the overall money supply unchanged .Therefore, the correct answer to the question is: C

Step-by-step explanation:

When Yolanda took $5,000 from her checking account and put the money into her savings account at the same bank, this would not change the overall money supply. Therefore, the correct answer to the question is: C. Neither M1 nor M2 changed because the transfer was done at the same bank. M1 includes funds in checking accounts and cash in circulation, while M2 includes M1 plus savings accounts, money market accounts, and other types of accounts.


Since Yolanda's transaction was merely transferring funds between accounts within the same bank, it didn't reduce the money supply in M1 or M2. While both M1 and M2 can inform us about the liquidity of money and availability for spending, this kind of internal transfer does not affect the total amount of money in either category.