Question: All else being equal, how would each of the following affect the demand for M1? The demand for M2? Explain.
a. The maximum number of checks per month that can be written on money market mutual funds and money market deposit accounts is raised from three to thirty.
b. Home equity lines of credit that allow homeowners to write checks against the value of their homes are introduced.
c. The stock market crashes, and further sharp declines in the market are widely feared.
d. Banks introduce overdraft protection, under which funds are automatically transferred from savings to checking as needed to cover checks.
e. A crackdown reduces the illegal drug trade (which is carried out largely in currency).