If Many People Were to Suddenly Deposit into Their Checking

question 156

Multiple Choice

If many people were to suddenly deposit into their checking accounts large sums of cash previously held in their homes and/or wallets, and there were no offsetting actions by the Fed or change in institutional policies, this would

• A) decrease the M1 money supply but increase the M2 money supply.
• B) increase the excess reserves of banks and expand the money supply if these reserves are used to make additional loans.
• C) reduce the excess reserves of banks and indirectly decrease the M1 money supply.
• D) reduce the excess reserves of banks and indirectly increase the M1 money supply.

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Definitions:

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ATM Card

A plastic card issued by a bank that allows the cardholder to withdraw cash from automated teller machines.

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