If Banks Move a Substantial Portion of Depositors' Money from Interest-Earning

question 198

Multiple Choice

If banks move a substantial portion of depositors' money from interest-earning checking accounts into money-market deposit accounts, how will the money supply measures be affected?

• A)M1 will become smaller, and M2 will become larger.
• B)Both M1 and M2 will increase in size.
• C)Both M1 and M2 will decrease in size.
• D)The size of M1 will be reduced, but M2 will be unchanged.

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Definitions:

Magnetically Powered

Devices or systems that are operated or driven by magnetic force or magnetic fields.

Decreasing Average Cost

A situation where the average cost of production decreases as the quantity of output increases, often due to economies of scale.

Market Structures

The organization and characteristics of a market, including the number and size of producers, product differentiation, and the ease of entry and exit, which affect competition and pricing strategies.

Close Substitutes

Products or services that can easily replace each other in the eyes of the consumer, due to their similar features and functionalities.