Suppose you transfer $500 from your savings account to your checking account. With this transaction, M1 _____ and M2 _____.

Question

Quizplus · Accepted Answer

M1 includes forms of money that are readily accessible for transactions, such as currency and checking account balances. Transferring money from a savings account (which is part of M2 but not M1) to a checking account does not change the total amount of money in the economy; it just moves money from one category to another within M2. Therefore, M1 increases because checking account balances increase, but M2 stays the same because the total amount of money in M2 (which includes both M1 and savings accounts) does not change.

Suppose You Transfer $500 from Your Savings Account to Your