Fred C.

asked • 22d

How the money multiplier changes the M1 and M2

Hello,

I would like to know if my answer to the question below is correct:


Question: How much does M1 and M2 change in the following situations?

$500 is transferred from a checking to a savings account.


Answer: M1 decreases and M2 stays the same.


Explanation: Since M1 includes currency in circulation, removing cash from a checking account would decrease the money supply. Since M2 includes M1 + savings deposits, putting cash in a savings account would not change the money supply, since the cash would be the same amount put into a different deposit.

1 Expert Answer

By:

Still looking for help? Get the right answer, fast.

Ask a question for free

Get a free answer to a quick problem.
Most questions answered within 4 hours.

OR

Find an Online Tutor Now

Choose an expert and meet online. No packages or subscriptions, pay only for the time you need.