Allowing Banks to Pay Interest on Their Checking Account Deposits

question 44

Multiple Choice

Allowing banks to pay interest on their checking account deposits should cause

• A) the LM curve to get flatter because larger increases in GDP could be accommodated by the same adjustment in real rates.
• B) the LM curve to get steeper because currency demand still is correlated with the real interest rate.
• C) ^{the LM curve to get steeper because demand for M}1 ^{becomes less} sensitive to changes in interest rates when rates paid on checking deposits parallel those paid by other financial assets.
• D) ^{the LM curve to become vertical because demand for M}1 ^becomes totally independent of the interest rate.
• E) none of the above.

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Definitions:

Terms 2/10

A common payment term indicating that a buyer can take a 2% discount on the invoice amount if paid within 10 days.

Accounts Receivable

Money owed to a business by its clients or customers for goods or services delivered but not yet paid for, typically recorded on the balance sheet.

Perpetual Inventory System

An approach in inventory accounting that employs computerized point-of-sale systems and enterprise asset management software to instantaneously record the purchase or sale of inventory items.

Credit To Inventory

An accounting entry that increases the inventory account, reflecting the addition of goods or the correction of an underreported inventory balance.