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.