Rick withdraws 500 from his savings account, keeps 100 as ...

[crazycityslicker]

Rick withdraws 500 from his savings account, keeps 100 as currency, and deposits 400 in his checking account.
 
  A. M1 increases by 400 and M2 decreases by 500.
  B. M1 does not change, but M2 decreases by 500.
  C. M1 does not change, but M2 decreases by 400.
  D. M1 increases by 500 and M2 does not change.

Question 2

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would
 
  A) also double. B) remain constant. C) decrease by 50. D) be cut in half.

[EAN94]

Answer to Question 1

D When the 500 was in the savings account, none of it was counted as M1 although all was counted as M2 . When the funds are changed to currency and checkable deposits, all of it becomes part of M1 and hence all of it remains as M2 .

Answer to Question 2

B