Everything else held constant,an increase in the interest rate paid on checkable deposits will cause ________ in the amount of checkable deposits held relative to currency holdings and ________ in the currency ratio.

Question

Quizplus · Accepted Answer

An increase in the interest rate paid on checkable deposits makes checkable deposits more attractive relative to currency holdings, leading to an increase in the amount of checkable deposits held. This also means that the currency ratio (currency held relative to checkable deposits) decreases. Therefore, the correct choice is B, as it reflects an increase in checkable deposits held and a decrease in the currency ratio.

Everything Else Held Constant,an Increase in the Interest Rate Paid