If households in the economy decide to take money out of demand deposit accounts and put this money into long-term savings accounts, this will:
A)decrease M1 and increase M3.
B)decrease M1 and increase broad money.
C)decrease M1 and not change M3.
D)increase M1 and decrease M3.

Question

Quizplus · Accepted Answer

Demand deposit accounts are a part of M1 money supply, and long-term savings accounts are typically excluded from M1 but included in M3 money supply. Therefore, the shift from demand deposit accounts to long-term savings accounts will decrease M1 but not change M3.

If Households in the Economy Decide to Take Money Out