Question

1. Say whether each of the following are types M1 or M2 or both? a) $0.27 cents that has accumulated under a couch cushion. b) Your $2,000 line of credit with your Visa account. c) The $210 balance in your checking account. d) $417 in your savings account. e) 10 shares of stock your uncle gave you on your 18th birthday, which are now worth $520. f) $200 in traveler’s checks you have purchased for your spring?break trip. To the Tutor: Please be clear and explanatory. Will be appreciated. Thank you.

Answer 1

M1 = Currency + Demand deposits + Travelers Check + Other checkable deposits

M2 = M1 + Savings account + Individual money market account + Time deposits (< $100,000)

(a) $0.27 is a form of currency, therefore it is included in both M1 and M2.

(b) A line of credit (or credit card) is not considered money, so this is neither M1 not M2.

(c) $210 balance in checking account is both M1 and M2.

(d) Savings account balance belongs to only M2.

(e) Shares of stock are not considered money, so this is neither M1 not M2.

(f) Travelers' check is included in both M1 and M2.