Final answer:
Debit transactions use funds from a person's bank account, while credit transactions involve borrowing money from the credit card company. Debit cards are linked directly to bank accounts, while credit cards are not. The representation of money and credit varies in accounting, with M1 and M2 classifications for different forms of money.
Step-by-step explanation:
For bank credit/debit transactions on a given item, they are debit and credit respectively. A debit card allows the holder to transfer money electronically from their bank account when making a purchase for a good or service. This is the actual money that the holder has in their saving/checking account, as debit cards are connected to your bank account.
In contrast, a credit card allows you to borrow money from the credit card company to make a purchase, which is not money you currently have but a short-term loan that you must repay.
To further elaborate on the economic concepts, such as types of money (M1, M2), here are the categorizations for the list of financial items:
- Your $5,000 line of credit on your Bank of America card - Neither M1 nor M2
- $50 dollars' worth of traveler's checks you have not used yet - M1
- $1 in quarters in your pocket - M1
- $1200 in your checking account - M1
- $2000 you have in a money market account - M2
It's important to note that in discussing forms of money, debit cards and checks are just methods of accessing checkable deposits, which are considered money. Credit cards, on the other hand, are not considered money but rather a form of short-term loan because the credit card company pays on your behalf and later you repay the company.