Suppose your bank lowers its minimum balance requirement by $500. So you take $500 out of your checking account and put it into a money market deposit account. What is the overall effect on M1 and M2?
A. M1 falls by $500, M2 rises by $500.
B. M1 is unchanged, M2 is unchanged.
C. M1 falls by $500, M2 is unchanged.
D. M1 is unchanged, M2 rises by $500.
Answer: C
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