Question

Wendy is comparing two checking accounts, one with a monthly fee of nine dollars and a project and $.50

a) Project
b) Cost
c) Transaction
d) Charge

Answer 1

The student's question involves categorizing various forms of money as either M1, M2, or neither. Physical currency and balances in checking accounts are M1, while savings accounts, and money market accounts fall under M2. A line of credit is neither M1 nor M2, as it represents potential borrowing power rather than actual funds.

Step-by-step explanation:

The student is asking about different forms of money and which categories they fall into according to modern monetary economics. Specifically, the forms are M1 and M2, which are measures of the money supply. To clarify:

• M1 includes funds that are readily accessible for spending, such as physical currency and checking account balances.
• M2 includes M1 plus savings accounts, money market accounts, and other types of accounts from which money can be easily transferred.

Now, with respect to the items listed:

1. A $5,000 line of credit is neither M1 nor M2 because it is not actual money, but rather the potential to borrow money.
2. $50 in traveler's checks are considered part of M1 because they are easily used for transactions.
3. $1 in quarters in your pocket is part of M1 as it is physical currency.
4. $1200 in your checking account is part of M1 as it's money in a checking account, readily available for transactions.
5. $2000 in a money market account is part of M2 because it is not as readily accessible as checking accounts but still relatively liquid.

The final answer for whether the items are in M1, M2, or neither can be summarized in a two-line explanation:

a. Neither M1 nor M2
b. M1
c. M1
d. M1
e. M2