Suppose you cash in a Certificate of Deposit (a small time deposit) to acquire the traveler's checks you'll need for your vacation. What happens to M1 and M2?
A) M1 stays the same and M2 increases.
B) M1 and M2 both increase.
C) M1 increases and M2 stays the same.
D) M1 increases and M2 decreases.

Question

Quizplus · Accepted Answer

When you cash in a Certificate of Deposit, M1 increases because you now have more cash that is readily accessible. However, M2 stays the same because traveler's checks are considered a component of M1, not M2. Therefore, only M1 increases while M2 stays the same in this scenario.

Suppose You Cash in a Certificate of Deposit (A Small