If you withdraw $100 from your checking account and use the money to purchase a 14-month CD (certificate of deposit), M1 [ Select ] and M2 [ Select ]

Question

BlackTom AI · Accepted Answer

Checkable (demand) deposits belong to M1, while small-denomination time deposits (retail CDs) are included in M2 but not M1. That distinction is the key.

1) Relevant knowledge points and concepts
- M1 = currency + traveler's checks + checkable (demand) deposits. 
- M2 = M1 + savings deposits + small time deposits (small-denomination CDs) + retail money market funds. 
- Moving funds from a checkable deposit into a small CD shifts the funds out of M1 and into the time-deposit component of M2.

2) Step-by-step reasoning
- You withdraw $100 from your checking account (a checkable deposit). That $100 was originally counted in M1.
- You immediately buy a 14-month CD with that $100. A retail CD is a small time deposit: it is NOT part of M1 but IS part of M2.
- Thus the $100 leaves the M1 category and reappears in the small time-deposit category within M2.

3) Calculations / intermediate algebra
Let M1_0 and M2_0 be the initial money measures. Let D represent checkable deposits and TD represent small time deposits.
- Initially: M1_0 = (other M1 components) + D
- After transaction: D' = D − 100, TD' = TD + 100
- New M1 = M1_0 − 100 (since D decreased by 100)
- New M2 = (M1_0 − 100) + (TD + 100) + (other M2 components not in M1) = M2_0
So M1 decreases by $100; M2 is unchanged.

4) Why the correct answer is correct
Because the $100 is shifted from a component counted in M1 to a component excluded from M1 but included in M2, M1 falls while M2’s total stays the same.

5) Why the other possible answers are incorrect
- Saying M1 remains unchanged is wrong because the checkable deposit component actually decreases by $100 with no immediate offset within M1.
- Saying M2 falls or rises is wrong because the $100 simply moves from the M1 portion into the small time-deposit portion of M2, leaving the aggregate M2 unchanged.

6) Conclusion
M1 falls and M2 remains unchanged. This matches the provided answer: "falls." and "remains unchanged."

If you withdraw $100 from your checking account and use the money to purchase a 14-month CD (certificate of deposit), M1 [ Select ] and M2 [ Select ]多重下拉选择题

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If you withdraw $100 from your checking account and use the money to purchase a 14-month CD (certificate of deposit), M1 falls. and M2 remains unchanged.

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