Macroeconomics (Book Only)
Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 12, Problem 1VQP
To determine

Changes in M1 and M2.

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Explanation of Solution

M1 and M2 indicate the money supply in the economy. The M1 category involves currency held in hand checkable deposits and traveler’s checks. The M2 category involves all M1 category money supply plus saving deposit, time deposit, and money market mutual fund. Thus, if $4 million is transferred to checkable deposit, the M1 money supply will fall, but at same time, the M2 category money supply will remain the same, that means, $4 million deposit does not make any changes in M1.

Economics Concept Introduction

Money supply: Money supply refers total stock of money circulated in the economy.

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