Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

Question

Quizplus · Accepted Answer

Transferring money from a savings account to a checking account increases M1 (which includes currency and checking deposits) because more money is now in a form that is readily available for spending. M2 (which includes M1 plus savings accounts, money market accounts, and other near monies) remains the same because the total amount of money in the economy has not changed, only its composition within M1 and M2 categories.

Michelle Transfers $4,000 from Her Savings Account to Her Checking