Suppose that Ronny decides to withdraw all of the cash from his chequing account and open a single notice deposit account at the same bank.As a result of this transaction:

Question

Quizplus · Accepted Answer

By withdrawing cash from his chequing account and depositing it into a notice deposit account, Ronny is reducing M1+ (the measure of the money supply that includes currency in circulation and demand deposits). This is because the cash that was in his chequing account is now no longer available for immediate spending. However, because the funds have not left the banking system entirely, M2 (the broader measure of the money supply that includes M1+ plus savings deposits and other near-money substitutes) remains unchanged. Therefore, the correct choice is D - M1+ falls but M2 remains unchanged.

Suppose That Ronny Decides to Withdraw All of the Cash