When her $1,000 time deposit expires, Suneeta decides not to renew the time deposit and opts to cash out. As a result of her transaction
A) M1 and M2 increase.
B) M1 increases and M2 decreases.
C) M1 is unaffected and M2 decreases.
D) M1 increases and M2 is unaffected.

Question

Quizplus · Accepted Answer

When Suneeta cashes out her time deposit, the money moves from a time deposit (part of M2) to cash or a checking account (part of M1). M1 increases because it includes cash and checking deposits, while M2 remains unaffected because it includes both M1 and time deposits.

When Her $1,000 Time Deposit Expires, Suneeta Decides Not to Renew