Final answer:
Items classified as M1 or M2 are down to their liquidity and immediate availability. Credit lines are neither since they represent potential, not actual, funds. The flow of money affects the current account balance, with imports potentially making it more negative, and exports or foreign investments making it more positive.
Step-by-step explanation:
When classifying the items as either M1, M2, or neither, we consider their liquidity (ease of converting to cash) and whether they are included in the money supply. Here's the breakdown:
- a. Your $5,000 line of credit on your Bank of America card: Neither - A line of credit is not part of the money supply as it is potential debt, not actual funds.
- b. $50 dollars' worth of traveler's checks you have not used yet: M1 - Traveler's checks are considered as good as cash and are part of M1.
- c. $1 in quarters in your pocket: M1 - Cash in circulation is a primary component of M1.
- d. $1200 in your checking account: M1 - The funds in checking accounts are part of M1 because they are available for spending and payment.
- e. $2000 you have in a money market account: M2 - Money market accounts are included in M2, as they are less liquid than M1 but still relatively accessible.
Regarding the flow of monies and its impact on the current account:
- If more money is flowing out of the country than into it (e.g., due to high imports), the current account will become more negative or less positive.
- Conversely, if more money is entering the country (e.g., through exports or foreign investments), the current account will become less negative or more positive.
The dividends and interest from foreign investments are reflected as imports of income, affecting the current account balance.