A run on a bank may occur if
A. depositors withdraw some funds to invest in the stock market.
B. required reserves are increased.
C. interest rates are raised.
D. depositors lose confidence in the bank and attempt to withdraw all their funds.
E. All of these responses are correct.
Answer: D
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Which of the following best describes the chain of events in the money creation process?
A) The monetary base increases. Banks acquire excess reserves which they loan out, increasing deposits and also the quantity of money. The new deposits then create additional excess reserves. B) Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money. C) Desired reserves increase, encouraging banks to seek new deposits. When the new depositors come in, desired reserves decrease and the quantity of money increases. D) Low interest rates discourage people from holding currency. When they deposit the currency, interest rates rise, increasing the quantity of money.
Everything else held constant, a monetary expansion is characterized by ________ output and ________ interest rates
A) rising; rising B) rising; falling C) falling; rising D) falling; falling
The LM curve is the set of combinations of ________ such that ________
A) interest rates and real money balances, real income equals real money balances times (1/r) B) interest rates and real money balances, the money supply is equally demanded C) real income and real money balances, the production of output is equally demanded D) real income and interest rates, the production of output is equally demanded E) real income and interest rates, the money supply is equally demanded
In Figure 5-1 above, if the budget line BB0, the natural real GDP is $5300, and actual real GDP is $5000, then the cyclical budget surplus or deficit is the
A) horizontal distance between A and F. B) vertical distance between F and D. C) vertical distance A and F. D) horizontal distance between B and D.