If Ann Were to Convert Some of Her Checkable Deposits

question 15

Multiple Choice

If Ann were to convert some of her checkable deposits into a certificate of deposit,which of the following changes would take place?

• A) M1 would decrease and then increase; M2 would increase and then decrease.
• B) There would be no changes to M1 or M2.
• C) M1 would decrease; there would be no change in M2.
• D) Both M1 and M2 would increase.
• E) Both M1 and M2 would decrease.

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Definitions:

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues.

Fixed Expenses

Costs that do not change in total regardless of changes in the level of business activity or volume.

Annual Cash Inflow

The total amount of money being received into a business from all sources over the course of a year.

Depreciation

The process of allocating to expense the cost of a plant asset over its useful (service) life in a rational and systematic manner.