1) Which of the following items is part of M1? M2?
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.
2) When the price of bonds decreases, the interest rate rises. Explain.
3) Some low-income countries do not have a bond market. In such countries, what substitutes for money do you think people would hold?
4) Explain how the Fed's sale of government bonds shifts the supply curve for money.