Suppose Laqueta deposits $10,000 of cash into a checking account at a commercial bank. The immediate effect is
A) a $10,000 decrease in the M1 money supply.
B) no change in the M1 money supply, but in the future, the M1 money supply will tend to decrease because the bank now has excess reserves.
C) no change in the M1 money supply, but in the future, the M1 money supply will tend to expand because the bank now has excess reserves.
D) a $10,000 increase in the M1 money supply.

Question

Quizplus · Accepted Answer

Depositing cash into a checking account does not change the M1 money supply immediately, as both cash and checking deposits are part of M1. However, the bank can lend out a portion of the deposit, potentially increasing the M1 money supply in the future.

Suppose Laqueta Deposits $10,000 of Cash into a Checking Account