Suppose you transfer 2,000 from your mutual fund account to your ...

[Pea0909berry]

Suppose you transfer 2,000 from your mutual fund account to your checking account. What is the immediate impact of this transfer on M1 and M2?
 
  What will be an ideal response?

Question 2

Suppose a positive technological change in the production of disease-resistant corn caused the price of corn to fall. Holding everything else constant, how would this affect the market for wheat (a substitute for corn)?
 
  A) The demand for wheat would decrease and the equilibrium price of wheat would decrease.
  B) The demand for wheat would increase because consumers could afford to buy more wheat and corn.
  C) The demand for wheat would decrease and the equilibrium price of wheat would increase.
  D) The supply of wheat would increase and the equilibrium price of wheat would decrease.

[diesoon]

Answer to Question 1

Mutual fund balances are part of M2, but are not part of M1. Checking account balances are included in both money supply measures. Thus M1 will increase by 2,000 with the increase in checking account balances. M2 will not change, as the 2,000 increase in checking account balances is offset by the 2,000 decrease in mutual fund accounts.

Answer to Question 2

A

[Pea0909berry]

Gracias!

[cdmart10]

Thanks for the timely response, appreciate it