Final answer:
A bank correction for an erroneously recorded check is a reversal on a bank statement. Items such as traveler's checks and physical currency fall under M1, while money in a checking account is M1 and money in a money market account is M2. A line of credit is neither M1 nor M2.
Step-by-step explanation:
Understanding Bank Corrections and Money Supply Components
A bank correction of an error from recording a 50 check paid as 500 appears on the bank statement as a reversal. This correction is done to rectify the discrepancy caused by the error in recording the amount. Now, let us categorize various items as parts of the money supply, known as M1, M2, or neither:
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- Your $5,000 line of credit on your Bank of America card is neither M1 nor M2 because it represents potential borrowing, not actual money.
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- $50 dollars' worth of traveler's checks you have not used yet falls into M1, as traveler's checks are considered a part of the money in circulation that can be readily used for transactions.
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- $1 in quarters in your pocket is also part of M1, as it is physical currency in circulation.
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- $1200 in your checking account is considered M1 because it's a component of liquid assets readily available for transactions.
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- $2000 you have in a money market account falls under M2, which includes savings deposits, money market mutual funds, and other time deposits that are less liquid than M1 but still relatively accessible.