If Households in the Economy Decide to Take Money Out

question 22

Multiple Choice

If households in the economy decide to take money out of checking account deposits and hold it as currency,this will initially

• A)not change M1 and increase M2.
• B)decrease M1 and decrease M2.
• C)decrease M1 and not change M2.
• D)not change M1 and not change M2.

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Definitions:

Normal Goods

Goods for which demand increases as consumer income rises, and falls when consumer income decreases, opposite to inferior goods.

Inferior Goods

Goods whose demand decreases as the income of consumers increases, in contrast to normal goods.

Income

Income generated regularly from employment or investments.

Soda

A carbonated soft drink that is flavored and sweetened, often consumed as a beverage.