Allowing Checking Deposits to Earn Interest Should Not Make the LM

question 7

Multiple Choice

Allowing checking deposits to earn interest should not make the LM curve vertical because

• A) the demand for checking deposits remains insensitive to changes in the interest rate.
• B) the demand for currency remains sensitive to changes in the interest rate.
• C) the rates paid to checking deposits usually move up when the returns paid to other assets moved down and vice versa.
• D) banks do not immediately pay interest on checking accounts and depositors' reacting to the expectation of future earnings on checking deposits neutralize any potential stimulus.
• E) none of the above.

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Definitions:

Taste Buds

Sensory organs located on the tongue and other parts of the mouth, responsible for detecting the five types of taste: sweet, sour, salty, bitter, and umami.

Vallate Papillae

Large, dome-shaped taste buds located at the back of the tongue, involved in the sensation of taste.

Secondary Olfactory

Refers to the brain's processing and perception areas for smells received from the primary olfactory receptors, involved in complex processes such as memory and emotions.

Olfactory Neurons

Specialized sensory cells located in the nasal cavity responsible for detecting and transmitting smells to the brain.