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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Can M1 fall as M2 rises? Can M1 rise without M2 rising too? Explain your answers.

To determine

Identify the changes on M1 and M2.

Explanation

The M1 and M2 are two methods to measure the money supply in an economy. M1 is the narrow definition and M2 is the broadest definition. Suppose, M1 is $500 and M2 is $700. Then, a withdrawal of $100 from the checkable deposit will decline the value of M1 as $400($500$100). At the same time, M2 is the sum total of M1 plus money market accounts

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