Question

assume you take $737 in cash and deposit it into your checking account. holding all else constant, how much will m1 change by? make sure you use a negative sign if it is a decrease. please round to two decimal places and do not include the dollar sign. for example, if your answer is $5678.977 you would enter 5678.98.

Answer 1

Depositing $737 in cash into a checking account does not change the M1 money supply since the money is simply taking a different form within the same monetary category. The change in M1 is therefore 0.00.

Step-by-step explanation:

The question involves understanding how the M1 money supply is affected by depositing cash into a checking account. In the context provided, M1 includes checkable (demand) deposits and currency in circulation.

When you take $737 in cash and deposit it into a checking account, that money still remains in the M1 money supply because it has merely changed forms from currency to a checkable deposit. Holding all else constant, the M1 will not change in value; therefore, the change in M1 would be 0.00 after the deposit.

This is because both currency and checkable deposits are components of M1. On the other hand, M2 would not change either since M2 includes all of M1 plus other forms of money like savings accounts and time deposits, which are unaffected by this transaction.