A person moves ₹50,000 from her current account into a one-year fixed deposit in the same bank. What happens to M1 and M3?

M1 is unchanged; M3 rises by ₹50,000Correct answerYour answerBoth fall by ₹50,000Correct answerYour answerBoth are unchangedCorrect answerYour answerM1 falls by ₹50,000; M3 is unchangedCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

Demand deposits (in M1) fall by 50,000, so M1 falls.
Time deposits rise by 50,000; M3 = M1 + time deposits, so M3 does not change.

Concept: Moving from demand to time deposits
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsThe supply of money: M1 to M4

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A person moves ₹50,000 from her current account into a one-year fixed deposit in the same bank. What happens to M1 and M3?

Explanation