1. Suppose your $50,000 certificate of deposit (CD) matures and you transfer the funds to your checking account. This causes
both M1 and M2 to increase by $50,000.
M1 to increase by $50,000 and M2 to remain the same.
no change to either M1 or M2.
M1 to decrease by $50,000 and M2 to increase by $50,000.
2. Suppose that the inflation rate has been 3 percent per year for several years, and the unemployment rate has been stable at 5 percent. Unanticipated changes in government policy cause the inflation rate to increase to 6 percent. In the short run, we would expect the unemployment rate to
increase, but the exact amount cannot be known for sure.
increase to 10 percent.
decrease.
remain constant.