Question

The two most common types of check frauds are checks drawn on closed accounts or checks written on accounts with insufficient funds.

a) True
b) False

Answer 1

The statement about check frauds being the most common types is false due to the prevalence of identity theft. Components of the money supply vary; lines of credit are neither M1 nor M2, traveler's checks and checking account balances are M1, and money market accounts are M2.

Step-by-step explanation:

The statement 'The two most common types of check frauds are checks drawn on closed accounts or checks written on accounts with insufficient funds.' is False. While these are common types of check fraud, identity theft, also known as 'True-name Fraud', is another significant type of fraud. Identity theft involves the wrongful acquisition and use of a consumer's personal identification, credit, or account information without their permission, which can lead to drained savings accounts and massive debts.

Now, let's differentiate between the components of the money supply:

1. Your $5,000 line of credit on your Bank of America card - Neither M1 nor M2 since it is a loan potential, not actual money.
2. $50 dollars' worth of traveler's checks you have not used yet - M1, as traveler's checks are part of the demand deposits and checkable deposits.
3. $1 in quarters in your pocket - M1, as it is part of currency in circulation.
4. $1200 in your checking account - M1, again as it is part of demand deposits and checkable deposits.
5. $2000 you have in a money market account - M2, as money market accounts are included in the near money category.