If a person withdraws $500 from his/her savings account and puts it in his/her checking account,then M1 will ________ and M2 will ________.

Question

Quizplus · Accepted Answer

M1 includes currency, demand deposits, and other liquid assets that can be easily converted into cash. When a person withdraws $500 from his/her savings account and puts it in his/her checking account, the amount of currency and demand deposits increases, which leads to an increase in M1. M2 includes M1 plus other less liquid assets such as savings accounts and money market accounts. Since the amount of savings accounts decreases when a person withdraws money from it, M2 will not change.

If a Person Withdraws $500 from His/her Savings Account and Puts