Question

Please determine whether the following belongs to M1, M2, or both.

$200 deposits at Steven's checking account
A. M1 B. M2 C. Both M1 and M2 D. Neither 2

Answer 1

Your $5,000 line of credit on your Bank of America card is neither in M1 or M2. $50 dollars' worth of traveler's checks you have not used yet, $1 in quarters in your pocket, and $1200 in your checking account are in both M1 and M2. $2000 you have in a money market account is only in M2.

Step-by-step explanation:

a. Neither in M1 or M2: Your $5,000 line of credit on your Bank of America card is not considered part of M1 or M2 because it is not physical currency or a checking deposit.

b. M1 and M2: $50 dollars' worth of traveler's checks that you have not used yet is considered part of both M1 and M2. Traveler's checks are a form of currency and can be used as a medium of exchange.

c. M1 and M2: $1 in quarters in your pocket is considered part of both M1 and M2. Quarters are physical currency and can be used for transactions.

d. M1 and M2: $1200 in your checking account is considered part of both M1 and M2. Checking deposits are included in both measures of money supply.

e. M2: $2000 you have in a money market account is considered part of M2. Money market accounts are included in M2, but not in M1.