Final answer:
Categories of money supply, M1 and M2, differ based on liquidity. M1 includes liquid assets like currency and checking deposits, while M2 adds to M1, including savings and money market accounts. Each item listed is categorized accordingly, emphasizing the relevance to economic analysis.
Step-by-step explanation:
To determine which category each item belongs to, let's look at the definitions of M1 and M2 money supply components.
- M1 includes the most liquid forms of money, such as currency, demand deposits, and other liquid monies that can be used quickly and easily.
- M2 includes all of M1, plus saving deposits, money market accounts, and other near money that is not as liquid as M1 but can still be converted into cash reasonably fast.
Now, let's categorize each item:
- a. Your $5,000 line of credit on your Bank of America card: Neither, because a credit line is not money you already possess; it's a borrowing limit.
- b. $50 dollars' worth of traveler's checks you have not used yet: M1, because traveler's checks are considered a part of currency and can be used as cash.
- c. $1 in quarters in your pocket: M1, as it is part of physical currency in circulation.
- d. $1200 in your checking account: M1, because funds in checking accounts are liquid and can be used for transactions.
- e. $2000 you have in a money market account: M2, since money market accounts are included in near money, which is not as liquid as M1 but still accessible.