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home / study / business / economics / economics questions and answers / 4. indicate what would happen to both m1 and m2 (increase, decrease, no change) due to each ... Question: 4. Indicate what would happen to both M1 and M2 (increase, decrease, no change) due to each of th... 4. Indicate what would happen to both M1 and M2 (increase, decrease, no change) due to each of the following events. Consider each lettered event to be independent of the others. a) you write a check for cash at the casino b) an individual redeems a personal CD and deposits the funds into a savings deposit account c) U.S. commercial banks use some of their excess reserves to purchase $250 billion worth of U.S. Treasury securities from the Federal Reserve. d) as the economy improves, banks ease their credit standards and approve a higher percentage of loan applications. e) you spend $4,000 in U.S. currency while on your spring break trip to Acapulco (if you spent less than that you could not have had much fun)

I asked that question before, but the answer seems not correct ???

Please provide accurate work


Answers

a. M1- increases, M2-no change.

Moving money from one account to another doesnot change M2 as it is already included in it. But it will increase M1 as more money is put into circulation.

b. M1- No change , M2-No change.

as M1 doesnot include savings account and time deposits it is not affected. The money reedemed is deposited into savings account so it is already included in M2 therfore no change

c.

M1 decrease, M2 decreases.

the money supply will decrease when it purachases treasury securities from Federal reserve and it will lead to a decrease in M1 and M2 .t

d. M1 increases, M2- no change

as more loans are approved, the money supply increases

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