If an individual moves money from a small-denomination time deposit to a demand deposit account
A)M1 increases and M2 stays the same.
B)M1 stays the same and M2 increases.
C)M1 stays the same and M2 stays the same.
D)M1 increases and M2 decreases.

Question

Quizplus · Accepted Answer

Moving money from a small-denomination time deposit to a demand deposit account increases the amount of money in M1 (which includes demand deposits) but does not affect M2 (which includes both M1 and less liquid forms of money such as savings accounts and time deposits). Therefore, the correct answer is A) M1 increases and M2 stays the same.

If an Individual Moves Money from a Small-Denomination Time Deposit