Mr Wong withdraws $500 000 in cash from a deposit-taking company. He then deposits $300 000 with a bank as a time deposit and remits the remaining $200 000 overseas for the settlement of debts. What are the effects on M1, M2 and M3?

Since the $500,000 is withdrawn from a deposit-taking company, M3 will decrease by $500,000 and M1 will increase by $500,000 immediately. Also, M2 will increase by $300,000 and M1 will decrease by $300,000 after depositing the money as a time deposit. M1 will decrease by $200,000 after remitting the money overseas.

The net change on

M1: +$500,000 (withdrawal) - $300,000 (time deposit) - $200,000 (remittance overseas) = $0;

M2: +$300,000 (time deposit) + $0 (net change in M1) = $300,000

M3: -$500,000 (withdrawal) + $300,000 (net change in M2) = -$200,000