1. Suppose you remove $1,000 from your checking account, put $800 into your savings account and hold $200 in cash. By how much has M1 increased or decreased, or has it remained the same? By how much hasM2 increased or decreased, or has it remained the same? Explain your answer briefly. NOTE: I am looking for precise numerical answers for the changes in M1 and M2.
2. If mortgage interest rates rise from 5 percent to 9 percent but the expected rate of inflation increases from 2 percent to 7 percent, are people more or less likely to buy houses? Explain your answer briefly.