Suppose your bank raises its minimum-balance requirement for free checking on checking accounts by $500. You take $500 out of your passbook savings account and put it in your checking account. What is the overall effect on M1 and M2?
A. M1 rises by $500; M2 is unchanged.
B. M1 rises by $500; M2 falls by $500.
C. M1 is unchanged; M2 is unchanged.
D. M1 is unchanged; M2 falls by $500.
Answer: A
Economics
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