Question

What is the effect on the money supply when you transfer $15,000 from your checking account to your savings account?

Answer 1

The Right and Valid Response is Option E i.e

Decrease M1; no effect on M2

M1 money supply includes those moneys that are very liquid such as cash, checkable (demand) deposits, and traveler's checks.

M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.

What is money supply ?

• The money supply is the total amount of money—cash, coins, and balances in bank accounts—in circulation. The money supply is commonly defined to be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments.

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Correct Question - What is the effect on the money supply when you transfer $15,000 from your checking account to your savings account?

A) Decrease M1; increase M2

B) Decrease M1; decrease M2

C) No effect on M1; increase M2

D) No effect on M1; no effect on M2

E) Decrease M1; no effect on M2