Suppose a Person Cashes His Payroll Check and Holds All

question 147

Multiple Choice

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant,total reserves in the banking system ________ and the monetary base ________.

• A)remain unchanged;increases
• B)decrease;increases
• C)decrease;remains unchanged
• D)decrease;decreases

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Definitions:

Net Exports

This term refers to the value of a country's total exports minus its total imports. It can indicate whether a country is a net exporter or net importer.

Exchange Rate

The value of one currency for the purpose of conversion to another.

Sticky-Price Theory

The economic theory that prices of goods do not adjust immediately to changing economic conditions, leading to periods of economic inefficiency.

Menu Costs

The costs of changing prices.