Suppose Megan withdraws $75 from her savings account and deposits it into her checking account.This transaction causes M1 to

Question

Quizplus · Accepted Answer

M1 includes currency, demand deposits, and other liquid assets that can be easily converted into cash. When Megan withdraws $75 from her savings account and deposits it into her checking account, the amount of currency in circulation remains the same, but the amount of demand deposits increases by $75. Therefore, M1 increases by $75. M2 includes M1 plus other less liquid assets, such as savings accounts and money market accounts. The transaction does not affect the amount of these assets, so M2 remains the same.

Suppose Megan Withdraws $75 from Her Savings Account and Deposits