Chapter 3, Problem 16Q

To determine

The effect on M1 and M2 measure of money supply when we invest some money in money market funds by writing a check.

Concept Introduction:

Money supply refers to the official stock of money supplied in a country at a particular point of time. There are some measures of money supply, these are:

${\text{M}}_1$ . Currency in circulation + Demand deposits

${\text{M}}_2$ . ${\text{M}}_1$ . Short term time deposits in the banks & 24-hour money market funds

${\text{M}}_3$ . ${\text{M}}_2$ . Long-term time deposits & money market funds with more than 24-hour maturity.

${\text{M}}_4$ . ${\text{M}}_3$ . other deposits.