\"If individuals decide to decrease the amount of currency they hold relative to
ID: 2440384 • Letter: #
Question
"If individuals decide to decrease the amount of currency they hold relative to their deposit balances and shift money in their money market accounts to savings accounts, what happens to the M1 money multiplier?"
The M1 money multiplier increases.
The M1 money multiplier decreases.
The M1 money multiplier does not change.
It depends on the relative magnitudes of currency to savings account balances.
The M1 money multiplier increases.
The M1 money multiplier decreases.
The M1 money multiplier does not change.
It depends on the relative magnitudes of currency to savings account balances.
Explanation / Answer
Solution: It depends on the relative magnitudes of currency to savings account balances
Explanation: Since M1 includes currency with public and demand deposit in all banks (e.g. savings account, current account); thus when person decide to reduce the amount of currency they hold and shift money in their money market accounts to savings accounts the M1 multiplier overall valuation effect will be depending upon the relative magnitude and currency composition of its liabilities
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