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If you go to the bank and withdrawal $100 from your savings account and put the currency in your pocket


If you go to the bank and withdrawal $100 from your savings account and put the currency in your pocket, 

  • M1 money will stay the same and M2 money will increase 

  • Both M1 and M2 money will increase 

  •  M1 money will increase and M2 money will stay the same 

  • M1 money will decrease and M2 money will stay the same 

  • M1 money will stay the same and M2 money will decrease 

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Answer #1

The correct answer is 'Option C'.

M1 money supply includes those components which are highly liquid in nature. It includes traveler's checks, currency in hand and demand deposits. M2 includes savings deposits, time deposits, traveler's checks, currency in hand and money market mutual funds. So, a transfer from savings account to cash will increase the value of M1 keeping the value of M2 same as before. Therefore, the correct answer is 'Option C'.

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