25. Suppose that individuals want to carry out more illegal transactions, so they decide to hold more of their money as currency and less as checking deposits. If the Fed does not respond, then reserves will _______________ and M1 will ________________ . A. rise; rise. B. rise; fall C. fall; fall D. fall; rise E. fall; remain unchanged
25. Suppose that individuals want to carry out more illegal transactions, so they decide to hold more of their money as currency and less as checking deposits. If the Fed does not respond, then reserves will _______________ and M1 will ________________ . A. rise; rise. B. rise; fall C. fall; fall D. fall; rise E. fall; remain unchanged
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Monetary System
Section: Chapter Questions
Problem 6CQQ
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25. Suppose that individuals want to carry out more illegal transactions, so they decide to hold more of their money as currency and less as checking deposits. If the Fed does not respond, then reserves will _______________ and M1 will ________________ . A. rise; rise. B. rise; fall C. fall; fall D. fall; rise E. fall; remain unchanged
The answer is C, but I don't understand why M1 will fall.
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