Question

Suppose your bank lowers its minimum balance requirement to get free checking by $500. So you take $500 out of your checking account and put it into your savings account. What is the overall effect on M1 and M2?

M1 falls by $500, M2 rises by $500.

M1 falls by $500, M2 is unchanged.

M1 is unchanged, M2 is unchanged.

M1 is unchanged, M2 rises by $500.

Answer 1

Answer:M1 is unchanged, M2 rises by $500.

Explanation:

Checking account is included in both M1 and M2 unlike savings account which only falls in M2 category. M2 category is less liquid which includes cerificates of deposit etc. M1 only includes money in your possession and public circulation.