A Decrease in Currency in Circulation Combined with an Equal

question 197

Multiple Choice

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

• A)​increase both M1 and M2.
• B)​increase M1 but have no effect on M2.
• C)​decrease both M1 and M2.
• D)​decrease M1 but have no effect on M2.

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Definitions:

Market Economy

An economic system where decisions regarding investment, production, and distribution are based on supply and demand, with little government intervention.

Market Equilibrium

A situation in which market supply equals market demand, so there is no incentive for price changes unless external conditions change.

Great Depression

A severe worldwide economic downturn during the 1930s, marked by prolonged unemployment, deflation, and significant declines in economic activity.

Economic Principle

Fundamental concepts that underpin the study and practice of economics, such as supply and demand or the cost-benefit analysis.