Figure 13-3 -In Figure 13-3 Above,suppose That the Fed Maintains a Fixed

question 16

Multiple Choice

Figure 13-3

-In Figure 13-3 above,suppose that the Fed maintains a fixed real money supply and that commodity demand is also fixed.The range of shifts in the LM curve,LM₁ to LM₂ lead to

• A)an unstable equilibrium output,C to B₁.
• B)a stable equilibrium output,C.
• C)an unstable equilibrium output,B₀ to B₁.
• D)a stable equilibrium output,B₀ to B₁.

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Definitions:

Legal Reserve Requirements

Regulations that require banks to keep a certain percentage of their deposits in reserve, either in cash on hand or as deposits with a central bank, to ensure liquidity.

Face Value

The nominal or original value stated on a coin, banknote, security, or any other financial instrument, without accounting for inflation, interest, or any other market factors.

Interest Rate

The percentage at which interest is paid by borrowers for the use of money they borrow from a lender.

Reserve Requirement

The portion of depositors' balances that banks must have on hand as cash, a regulation set by central banks to ensure liquidity.