Final answer:
M1 includes traveler's checks, quarters in your pocket, and your checking account, while your line of credit is neither M1 nor M2. A money market account is a part of M2. Recent changes classify savings deposits as part of M1.
Step-by-step explanation:
To understand what comprises M1 and M2 in the money supply, we can analyze various items:
- a. Your $5,000 line of credit - This is neither M1 nor M2 because a line of credit is not actual money deposited, but rather a potential borrowing.
- b. $50 worth of traveler's checks - These are included in M1, since traveler's checks are considered a form of checkable deposit.
- c. $1 in quarters in your pocket - This is M1, as it represents physical currency in circulation.
- d. $1200 in your checking account - Also part of M1, as checking accounts are a type of checkable deposits that are readily available for transactions.
- e. $2000 in a money market account - This is typically considered part of M2, which includes all of M1 plus savings deposits, money market accounts, and other near money that is not as liquid as those in M1 but still fairly accessible.
Savings deposits are now a component of M1, following recent changes in money supply definitions. These deposits, while not directly checkable, can be easily accessed through ATMs or bank tellers.