If you use $500 of currency to make a deposit in a saving deposit,
A) M1 and M2 both increase
B) M1 is unchanged, but M2 increases
C) M1 decreases and M2 increases
D) M1 decreases, but M2 is unchanged

Question

Quizplus · Accepted Answer

When you deposit $500 in a savings account, the currency component of M1 decreases because there is less physical currency in circulation. However, since savings deposits are part of M2 but not M1, M2 remains unchanged.

If You Use $500 of Currency to Make a Deposit