Suppose That Households Became Mistrustful of the Banking System and Decide

question 167

Multiple Choice

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

• A)increase.
• B)decrease.
• C)not change.
• D)increase,then decrease.

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Definitions:

Financial Planning

The process of estimating the capital required and determining its competition; it is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Fixed Percentage

A predetermined, unchanging fraction or rate used in various financial contexts, such as a fixed-rate mortgage.

External Financing

Funds a company seeks from outside sources, such as loans, investor equity, or bonds, to finance its activities.

Internal Growth Rate

The maximum rate at which a company can expand its operations using only internally generated revenue and without resorting to external financing.