Final answer:
Items classified into M1 include $50 in traveler's checks, $1 in quarters, and $1200 in a checking account, while $2000 in a money market account falls under M2; the line of credit is neither. For the future value calculation, $3855.43 should be deposited to reach $10,000 in ten years with an annual interest rate of 10% compounded annually.
Step-by-step explanation:
The terms M1 and M2 refer to different categories of the money supply. The Federal Reserve uses these categories to help understand how much money is circulating in the economy and what forms it takes. Here's how the mentioned items classify into M1, M2, or neither:
- M1: This includes currency in the hands of the public and checkable deposits.
- M2: This encompasses all of M1 plus savings deposits, small-denomination time deposits, and non-institutional money market funds.
Here are the classifications for the provided items:
- a. Your $5,000 line of credit on your Bank of America card - Neither (It's a form of credit, not actual money in circulation)
- b. $50 dollars' worth of traveler's checks you have not used yet - M1 (Traveler's checks are part of checkable deposits)
- c. $1 in quarters in your pocket - M1 (Currency in hands of the public)
- d. $1200 in your checking account - M1 (Checkable deposits)
- e. $2000 you have in a money market account - M2 (Non-institutional money market funds)
To determine how much money needs to be deposited in a bank account with 10% interest compounded annually to reach $10,000 in ten years, we use the formula for compound interest:
FV = PV(1 + r)^n
Where FV is the future value ($10,000), r is the annual interest rate (0.10), n is the number of years (10), and PV is the present value we need to find.
After rearranging the formula to solve for PV, we get:
PV = FV / (1 + r)^n
PV = $10,000 / (1 + 0.10)^10
PV = $10,000 / (1.10)^10
PV = $10,000 / 2.59374
PV = $3855.43 approximately
The amount to be deposited now would be approximately $3855.43.