Question

If Joe transfers $1,000 from his savings account to his checking account and assuming that banks cannot lend this money, then:a. M1 will remain the same. b. M2 will increase by $1,000. c. M1 will increase by $1,000. d. M1 will increase by $1,000, and M2 will decrease by $1,000.

Answer 1

C

Step-by-step explanation:

Mi money are highly liquid financial assets like checking account , cash and traveler's check while the M2 money are not as liquid when compared to M1, Example is , in addition to M1, savings , money market fund and certificates of deposit.

This means that whatever that impacts M1 will also impact M2.

Therefore , the transfer of $1000 for savings account will increase M1 by $1000.