The reserve requirements and discount rates affect M2 but do not have much impact on M1.

Question

Quizplus · Accepted Answer

Reserve requirements and discount rates primarily affect the banking system's ability to create loans, which influences the amount of checking deposits (a component of M1). Changes in these rates can indirectly affect M2 by altering the broader money supply, but they directly impact M1 through changes in checking account balances.

The Reserve Requirements and Discount Rates Affect M2 but Do