Final answer:
Items a, b, c, and d from the list are considered when defining M1 and M2 money supplies. Item a is neither M1 nor M2, while items b and c are part of M1, and item d is part of M1. Item e is classified as M2.
The correct option is b.
Step-by-step explanation:
When looking at the item list provided, we must determine which items are considered part of M1 and M2 money supplies. M1 includes funds that are readily accessible for spending, while M2 is a broader classification that includes M1 plus savings accounts, time deposits, and non-institutional money market funds.
- a. Your $5,000 line of credit on your Bank of America card is neither M1 nor M2 because it represents potential borrowing, not current assets.
- b. $50 dollars' worth of traveler's checks you have not used yet are part of M1 as they are easily accessible and commonly used for transactions.
- c. $1 in quarters in your pocket is part of M1 because it is physical currency ready to be used.
- d. $1200 in your checking account is part of M1 since checking accounts are considered liquid and can be used for payments and purchases immediately.
- e. $2000 in a money market account would be part of M2 as it includes money market accounts in addition to savings and checking accounts.
The correct option is b.