Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank.
A) Both M1 and M2 were reduced by $5,000.
B) M1 went down by $5,000,but M2 was unchanged.
C) Neither M1 nor M2 changed because the transfer was done at the same bank.
D) M1 and M2 both rose by $5,000.

Question

Quizplus · Accepted Answer

M1 represents the most liquid type of money, which includes cash and checking account balances. By taking $5,000 from her checking account, Yolanda reduced the M1 money supply by that same amount. However, the transfer did not affect M2 money supply, which includes less liquid forms of money such as savings deposits.

Yolanda Took $5,000 from Her Checking Account and Put the Money