If an individual moves money from currency to a demand deposit account
A)M1 decreases 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 stays the same.

Question

Quizplus · Accepted Answer

Moving money from currency (physical money) to a demand deposit account (checking account) does not change the total amount of money in M1 (which includes both physical currency and demand deposits) or M2 (which includes all of M1 plus savings accounts, small-denomination time deposits, and non-institutional money market funds). Both M1 and M2 remain the same because the composition of the money supply changes, but the total amounts do not.

If an Individual Moves Money from Currency to a Demand