Question at position 1 If an individual redeems a U.S. savings bond for currencyM1 stays the same and M2 decreases.M1 increases and M2 stays the same.M1 increases and M2 increases.M1 stays the same and M2 stays the same.

Question

Question at position 1 If an individual redeems a U.S. savings bond for currencyM1 stays the same and M2 decreases.M1 increases and M2 stays the same.M1 increases and M2 increases.M1 stays the same and M2 stays the same.

BlackTom AI · Accepted Answer

U.S. savings bonds are not part of M2, while currency is part of M1 (and therefore part of M2). Key monetary-aggregate definitions: M1 = currency (cash) + checkable deposits + traveler's checks; M2 = M1 + savings deposits + small time deposits + retail money-market mutual funds. U.S. savings bonds are nonmarketable government securities and are excluded from M2.

Step-by-step reasoning:
1) Start with symbols: let B = value of the redeemed savings bond, M1_0 and M2_0 be the initial aggregates.
2) Before redemption: the bond value B is not counted in M2 (so M2_0 does not include B).
3) After redemption for currency, the holder receives B in currency. Currency is part of M1, so M1 increases by B:
   M1_1 = M1_0 + B.
4) Because M2 includes all of M1, any increase in M1 raises M2 by the same amount (and since B was not previously in M2, there is no offsetting decrease):
   M2_1 = M2_0 + B.
5) Therefore both M1 and M2 rise by B.

Why the correct answer is correct:
Redeeming a non-M2 instrument (a savings bond) converts it into currency, directly raising the currency component of M1. Since M2 by definition includes M1, M2 also increases by that amount. There is no simultaneous subtraction from M2 to offset the increase because the bond was not counted in M2 to begin with.

Why the other choices are incorrect:
- “M1 stays the same and M2 decreases.” Incorrect: currency (M1) increases, and M2 would not decrease because the bond wasn’t in M2.
- “M1 increases and M2 stays the same.” Incorrect: M2 includes M1, so an increase in M1 raises M2 unless an offsetting decrease within M2 occurs — which it does not here.
- “M1 stays the same and M2 stays the same.” Incorrect: redemption adds currency, changing M1 (and thus M2).

Conclusion: M1 increases and M2 increases. This matches the provided correct answer.

Question at position 1 If an individual redeems a U.S. savings bond for currencyM1 stays the same and M2 decreases.M1 increases and M2 stays the same.M1 increases and M2 increases.M1 stays the same and M2 stays the same.单项选择题

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