If traveler's checks were $500 higher and saving deposits were $1,000 higher, M1 would be
A)$500 higher and M2 would be $1,000 higher
B)$500 higher and M2 would be $1,500 higher
C)M2 and M1 would be $1,500 higher
D)None of the above are correct.

Question

Quizplus · Accepted Answer

M1 includes currency in circulation, demand deposits, and traveler's checks. If traveler's checks increased by $500, then M1 would increase by $500.

M2 includes M1 plus savings deposits, money market securities, and time deposits less than $100,000. If savings deposits increased by $1,000, then M2 would increase by $1,500 ($1,000 in savings deposits plus $500 from the increase in traveler's checks in M1). Therefore, the correct answer is B.

If Traveler's Checks Were $500 Higher and Saving Deposits Were