Ava Buys a $2,000 Computer Using a Paper Check

Ava buys a $2,000 computer using a paper check. At which step does $2,000 get recorded in M1?

A) When Ava hands the $2,000 check to the computer merchant.
B) Once the $2,000 is credited to the merchant bank's reserve account and is debited from Ava's bank account.
C) Once the Federal Reserve sends the paper check (or an electronic image) to Ava's bank.
D) The check is never M1. The $2,000 is M1 both in Ava's bank account and, later, in the merchant's account. It is the deposit balance that is counted.

Correct Answer:

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