A new financial innovation results in people switching their funds from checking deposits to savings accounts. The quantity of M1 ________ and the quantity of M2 ________.
A) decreases; decreases
B) increases; decreases
C) decreases; does not change
D) decreases; increases

Question

Quizplus · Accepted Answer

M1 includes checking deposits, so when funds are moved from checking deposits to savings accounts, M1 decreases. M2 includes both M1 and savings accounts, so the total amount in M2 does not change.

A New Financial Innovation Results in People Switching Their Funds