Suppose Oscar withdraws $100 from his checking account and deposits it into his savings account.This transaction causes M1 to

Question

Quizplus · Accepted Answer

When Oscar withdraws $100 from his checking account, the money supply M1 decreases by $100 because it is a part of M1. However, when Oscar deposits the same $100 in his savings account, no new money is created; instead, it is just transferred from one type of M2 (a savings account) to another (a checking account). Therefore, M2 remains the same. Hence, the correct option is B: M1 decreases by $100, and M2 remains the same.

Suppose Oscar Withdraws $100 from His Checking Account and Deposits