Sam has $500 in travelerʹs checks. He cashes a $100 traveler check, deposits $150 into his checking account at a Savings and Loan Association, and deposits the remaining $250 into a savings account at a credit union. Immediately,_______________ .

Question

Quizplus · Accepted Answer

M1 (money supply) refers to the total amount of currency in circulation plus the checking account deposits, while M2 includes M1 plus savings account deposits and other types of deposits. When Sam cashes a $100 traveler check, M1 decreases by $100. When he deposits $150 into his checking account, M1 decreases by $150, but this deposit does not affect M2 since it is already included in M1. Finally, when he deposits $250 into a savings account, M2 increases by $250, but M1 is unaffected since savings account deposits are not included in M1. Therefore, the overall effect on the money supply is a decrease of $250 in M1, and no change in M2.

Sam Has $500 in Travelerʹs Checks