Final answer:
A certified check is drawn on a financial institution, backed by the financial institution's finances, and made out to a specific payee. It is guaranteed by the bank and has a verified signature and sufficient funds to cover the amount.
Step-by-step explanation:
A check drawn on a financial institution, backed by the financial institution's finances, and made out to a specific payee is called a Certified check. A certified check is guaranteed by the bank and has a verified signature and sufficient funds to cover the amount. This provides the payee with assurance that the check will be honored.
A certified check is a check guaranteed by the issuing bank, making it a form of demand deposit. While traveler's checks and checking account balances are part of M1, credit lines and credit card debts are not considered part of the money supply until repaid. A 'certified check' is a secure payment method backed by a depository institution's own finances.
A check drawn on a financial institution, backed by the financial institution's finances, and made out to a specific payee is called a certified check. This type of check is guaranteed by the issuing bank and stands in contrast to other forms such as a personal check, which is drawn against the funds in a person's account; a traveler's check, which can be used as cash and is also guaranteed by the issuing institution; and a counter check, which is a temporary check provided by the bank.
In the context of depository institutions, a certified check represents a demand deposit because it can be used immediately upon receipt for a cash withdrawal or to make a payment. Financial institutions diversify their risk by making a variety of loans and investments, including providing certified checks to their customers.
If we analyze different components of money supply like in M1, M2 classifications, here are some examples:
Your $5,000 line of credit on your Bank of America card is neither M1 nor M2 because it's a form of credit, not a deposit.
$50 dollars' worth of traveler's checks you have not used yet would be considered M1.
$1 in quarters in your pocket is M1, as it's physical currency.
$1200 in your checking account is part of M1, because it is a checkable deposit.
$2000 you have in a money market account would be considered part of M2, since money market accounts are considered 'near money'.
Regarding "plastic money" like debit cards, credit cards, and smart money, it's important to recognize that while debit cards and checks draw on existing bank deposits, making them part of the money supply (specifically M1), credit cards represent a short-term loan and do not fall under M1 or M2 until the debt is repaid and transferred into a deposit account.