Suppose you transfer $500 from your checking account to your savings account. With this transaction, M1 decreases; and M2 stays the same.
How is the total change in M1 determined?
The M1 money multiplier can be calculated using the formula m 1 = 1 + (C/D)/[rr + (ER/D) + (C/D)]. When you have m, enter it into the equation MS = m MB. The money supply will therefore increase by $263,160 if m 1 = 2.6316 and the monetary base rises by $100,000.
Even though it is not frequently cited and is not related to the money supply, the monetary base (MB or M0) is a crucial monetary aggregate. It includes this same total amount of money in use as well as the portion of commercial bank reserves that are kept on hand at the central bank.
Therefore, With this $500 transaction, M1 decreases; and M2 stays the same.
Learn more about M1 and M2 from the given link.
https://brainly.com/question/15584887
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