Suppose that you decide that you no longer want to hold currency, and deposit all of your currency holdings to your checking account. What is the immediate or initial impact of this transaction on M1 and M2?
What will be an ideal response?
Neither M1 nor M2 will change (at least not initially). Both checking account balances and currency holdings outside commercial banks are included in M1 and in M2. The decrease in currency holdings is perfectly offset by the increase in checking account balances.
You might also like to view...
A consequence of the quota that has been imposed on the importation of sugar into the United States is
A) competition in the U.S. sugar market is reduced. B) the market for sugar in the United States has become monopolistically competitive rather than oligopolistic. C) the cost of producing cereal, chocolate, and candy products in the United States is reduced. D) consumers are protected from eating unsafe products made from cheap imported sugar.
With the followings is NOT one of the reasons why quantitative easing in and of itself will not necessarily be stimulative?
A) Most of the resulting increase in the monetary base just flows into holdings of excess reserves. B) Banks just add to their holdings of excess reserves instead of making loans. C) The asset purchase program involves only the purchase of short-term government securities. D) The asset purchase program involves only the purchase of long-term government securities.
Why does a typical monopolistically competitive firm face a downward-sloping demand curve?
Internal production and market purchases are alternative ways of organizing transactions
Indicate whether the statement is true or false