John transfers $1,000 from his checking account to his savings account. This transaction will:

Question

Quizplus · Accepted Answer

The transfer of $1,000 from checking account to savings account will decrease the amount of funds that are considered part of M1 (currency in circulation, demand deposits, traveler's checks, and other checkable deposits). However, it will not change the amount of funds that are considered part of M2 (M1 plus savings deposits, small time deposits, and money market mutual funds). Therefore, the correct answer is C, which indicates that the transaction will decrease M1 and not change M2.

John Transfers $1,000 from His Checking Account to His Savings