Final answer:
The classification of monetary assets involves placing them into M1 and M2 categories based on liquidity. M1 includes traveler's checks, coins, and checking account balances, while M2 includes money in money market accounts. A line of credit is not included in either category as it is not considered money.
Step-by-step explanation:
The categorization of monetary assets into M1 and M2 is based on liquidity and their role in the payment system. Let's classify each of the listed items appropriately.
- a. Your $5,000 line of credit on your Bank of America card: Neither M1 nor M2. A line of credit is not considered money; it's a borrowing capacity that can be turned into money upon usage.
- b. $50 dollars' worth of traveler's checks you have not used yet: M1. Traveler's checks are part of M1 as they are accepted as a medium of exchange and can be directly used for transactions.
- c. $1 in quarters in your pocket: M1. Coins are considered to be a part of M1 because they are used in regular transactions as a medium of exchange.
- d. $1200 in your checking account: M1. Checking account balances are a part of M1, as funds in these accounts can be easily accessed for transactions.
- e. $2000 you have in a money market account: M2. Money in money market accounts is a part of M2 because while it is not as liquid as M1, it still can be converted to cash or checking deposits relatively quickly.
In summary, cash, traveler's checks, and checking account balances comprise M1 due to their high liquidity and usability for immediate transactions. Money market account funds are categorized as M2, offering a higher level of liquidity than assets that fall outside of M1 or M2 but less than M1 components.