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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

If individuals remove funds from their checkable deposits and transfer them to their money market accounts, will M1 fall and M2 rise? Explain your answer.

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. Suppose, people decide to remove the funds from checkable deposit and plan to invest in the money market account. Then, the impact of this decision on M1 and M2 can explain by using an example.

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<

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