Suppose you transfer $1,000 from your checking account to your savings account. How does this action affect the M1 and M2 money supplies?
A) M1 and M2 are both unchanged.
B) M1 falls by $1,000, and M2 rises by $1,000.
C) M1 is unchanged, and M2 rises by $1,000.
D) M1 falls by $1,000, and M2 is unchanged.

Question

Quizplus · Accepted Answer

When you transfer money from your checking account to your savings account, M1 decreases because there is less available for immediate use. However, M2 doesn't change because the money is still part of the overall money supply, just not as readily available. Therefore, the correct choice is D.

Suppose You Transfer $1,000 from Your Checking Account to Your