Final answer:
The listed items belong to M1 or M2 money supply based on their liquidity. Factors such as late payments, current interest rates, the borrower's profitability, and changes in economy-wide interest rates affect the value of loans in the secondary market.
Step-by-step explanation:
Understanding Money Supply
When determining if the listed items are part of M1 or M2 money supply, consider their liquidity (ease of spending).
a. Your $5,000 line of credit on your Bank of America card - Neither, as a line of credit isn't money but a potential loan.
b. $50 dollars' worth of traveler's checks you have not used yet - M1, since traveler's checks are considered a type of check.
c. $1 in quarters in your pocket - M1, as it is physical currency.
d. $1200 in your checking account - M1, as checking account balances are part of the highly liquid money supply.
e. $2000 you have in a money market account - M2, because money market accounts are less liquid than those forming M1, but still accessible.
Factors Influencing Loan Value
When buying loans in the secondary market, several factors influence the price a buyer may offer:
a. Late payments by a borrower suggest higher risk, leading you to pay less for the loan.
b. If interest rates rise after a loan is made, the loan's fixed rate may be lower than current rates, making it less attractive and worth less.
c. A borrower with high profits is more likely to repay, increasing the loan's value.
- d. If interest rates fall after the loan is made, the fixed rate of the loan is relatively higher, making it more valuable.