Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his savings account. As a result of this transfer by itself
A)M1 increases by $2,100 and M2 stays the same.
B)M1 increases by $2,100 and M2 increases by $2,100.
C)M1 decreases by $2,100 and M2 increases by $2,100.
D)M1 decreases by $2,100 and M2 stays the same.

Question

Quizplus · Accepted Answer

M1 decreases by $2,100 because checking account balances are part of M1. M2 stays the same because savings accounts are part of M2, and the total money supply (M2) does not change with transfers between M1 components.

Derek Decides to Forego a Major Appliance Purchase and Save