Question

Which of the following would be added to your cash balance based on the information on your bank statement?

1) Deposits made into your account
2) Withdrawals made from your account
3) Checks written by you
4) Fees charged by the bank

Answer 1

Deposits made into your account increase your cash balance, while withdrawals, checks written, and fees charged decrease it. M1 includes traveler's checks, cash in your pocket, and checking account balances, while M2 includes M1 plus money in a money market account.

Step-by-step explanation:

When analyzing a bank statement and determining what would be added to your cash balance, it's important to understand the different types of transactions and how they impact your account:

• Deposits made into your account increase your cash balance as they represent money that has been added to your account.
• Withdrawals made from your account decrease your cash balance because this represents money that you have taken out.
• Checks written by you decrease your cash balance, as the money is set aside to be taken from your account when the check is cashed.
• Fees charged by the bank also decrease your cash balance as these are expenses taken from your account.

Regarding the money supply concepts of M1 and M2, here's how the items you've listed would be categorized:

1. Your $5,000 line of credit on your Bank of America card would be neither M1 nor M2 because it represents potential borrowing, not actual money in circulation.
2. $50 dollars' worth of traveler's checks you have not used yet would be included in M1, as traveler's checks are part of the liquid money supply that can be used immediately for transactions.
3. $1 in quarters in your pocket is included in M1 since it is physical currency in circulation.
4. $1200 in your checking account is included in M1, as checking accounts are very liquid and are considered part of the immediate money supply that can be used for transactions.
5. $2000 you have in a money market account is considered part of M2, which includes all of M1 plus savings accounts, money market accounts, and other types of near money that are not as liquid as M1 but still fairly accessible.

Individuals and business owners deposit their money in banks for safekeeping, to earn interest, and to facilitate financial transactions, using tools such as checking accounts and money orders. Different types of banking institutions, including savings and loan banks (S and L’s) and credit unions, cater to various customer needs and provide different financial services and benefits.