Jan's Dry Cleaning holds $10,000 on a typical day, although only $2,000 is essential for carrying out business. Making a midday deposit is estimated to reduce cash holdings to $8,000 and cost an extra $80 per year in lost production. If, in addition, an armored car service is engaged to pick up cash more frequently for a fee of $120 per year, cash holdings will be further reduced to $6,000 per day. Employing a computerized cash management service for an annual fee of $180 would reduce cash holdings further to $4,000. If any reduction in cash holdings will be invested in government bonds earning 3%, then how much money should Jan's hold?
A. $4,000
B. $8,000
C. $6,000
D. $10,000
Answer: D
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In most cases, higher interest rates cause the velocity of M1 to
A) turn negative. B) move erratically. C) increase. D) decline.
Irrespective of the market structure, a firm maximizes profit at the level of output where the price of its product equals its marginal cost
a. True b. False Indicate whether the statement is true or false
When a bank's excess reserves are zero:
a. its required reserves exceed its legal reserves. b. its liabilities exceed its assets. c. its liabilities must be lower than its assets. d. its required reserves equal its legal reserves. e. it cannot meet its reserve requirement.
If you put $500 into a checking account, the immediate effect (do not consider the money multiplier which we will study in the next chapter) is:
a. M1 rises, M2 rises, and the monetary base remains the same. b. M1, M2, and the monetary base rise. c. M1, M2, and the monetary base fall. d. M1, M2, and the monetary base remain the same. e. M1 rises, M2 falls, and the monetary base remains the same.