Final answer:
M1 and M2 are categories of money supply, where M1 includes liquid forms of money such as cash and checking account balances, while M2 includes M1 plus near monies like savings and money market accounts. The $5,000 line of credit is neither, $50 in traveler's checks and $1 in quarters are in M1, $1200 in a checking account is in M1, and $2000 in a money market account is in M2.
Step-by-step explanation:
When discussing monetary aggregates such as M1 and M2, it is important to understand what categories of money they include:
- M1 includes funds that are readily accessible for spending. This includes physical currency, demand deposits (like checking accounts), and other checkable deposits.
- M2 includes all of M1 plus savings deposits, money market mutual funds, and other near monies which are not as readily accessible for spending but can be quickly converted into cash or checking deposits.
Given these definitions, for the list provided:
- Your $5,000 line of credit on your Bank of America card is neither M1 nor M2. It's a form of potential borrowing, not an owned asset.
- $50 dollars' worth of traveler's checks you have not used yet are part of M1 because traveler's checks are considered to be equivalent to cash or demand deposits.
- $1 in quarters in your pocket is part of M1 since it is physical currency.
- $1200 in your checking account is part of M1 since it is in a demand deposit account that can be used for transactions.
- $2000 you have in a money market account falls into M2, as it's a type of account that is not as liquid as a checking account but still can be readily converted into cash or checkable deposits