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

Question

Quizplus · Accepted Answer

When you deposit $500 in a savings account, the physical currency (part of M1) decreases because it is no longer in circulation. However, since M2 includes M1 plus savings deposits, among other components, the total amount of M2 remains unchanged; the money just shifts from one category to another within M2.

If You Use $500 of Currency to Make a Deposit