Final answer:
Cash consists of coins, banknotes, and cheques, but not credit cards. Credit cards represent a line of credit, not actual money. The student's list includes items from both M1 and M2 categories, with cash components like quarters and checking account balances in M1, while money in a money market account falls under M2.
Step-by-step explanation:
Cash consists of various forms of currency that can be used to conduct transactions. However, not all instruments that facilitate transactions are considered cash. Crucial to understanding what constitutes cash is differentiating between what is part of the money supply and what is not.
In answer to the student's question, cash consists of all of the following except credit cards. Cash specifically includes:
- Coins - These are part of the M1 money supply and are physical currency.
- Banknotes - Also part of M1, these represent physical notes issued by the central bank.
- Cheques - These are instruments that instruct a bank to pay a specific amount of money from an individual's account to another entity.
- Credit cards - These are not considered cash, as they represent a line of credit, which is an agreement to borrow money and repay it with interest.
Considering the items listed regarding their classification in the money supply:
- Your $5,000 line of credit on your Bank of America card - Neither M1 nor M2, as it is credit, not actual money.
- $50 dollars' worth of traveler's checks you have not used yet - M1, as traveler's checks are part of checkable deposits.
- $1 in quarters in your pocket - M1, since it is physical currency.
- $1200 in your checking account - M1, it is a checkable deposit.
- $2000 you have in a money market account - M2, as money market accounts are part of this broader money supply.