Answer :
In economics, the M1 money supply includes funds that are readily available for spending. Let's examine each of the options in the context of what is included in the M1 money supply:
1. **$200,000 balance in the checking account of Main Street Trading Corp.**
Checking accounts, also known as demand accounts or transaction accounts, allow for the deposit and withdrawal of money on demand. The balance in checking accounts is included in the M1 money supply because it is available for immediate spending.
2. **$200,000 in reserves held by Main Street Commercial Bank in its vaults**
Reserves held by banks are not included in the M1 money supply. This is because these reserves, whether they are in the vaults or deposited at the central bank, are not directly accessible for consumer spending.
3. **$2 million balance in the checking account of the U.S. Treasury**
The U.S. Treasury's checking account is also not included in the M1 money supply. These are funds held by the government for its own use and are not part of the circulating money accessible by the public for general spending.
4. **$200 million in the vaults of the Federal Reserve Banks**
This money represents the reserves of banks that are held at the Federal Reserve and is not part of the M1 money supply for the same reason as option 2; it is not accessible for immediate public spending.
Given the options, only the first choice—the $200,000 balance in the checking account of Main Street Trading Corp.—is considered part of the M1 money supply, as it is the money in circulation that is available for spending by consumers and businesses. Therefore, the correct answer is:
$200,000 balance in the checking account of Main Street Trading Corp.
