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.