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.