Question Details

Why would corporations want to achieve zero balances in their checking accounts 



"M1 can be a slippery commodity. The central bank admits to having significantly underestimated the transactions money flying around the system. One reason is that banks' bigger corporate customers cottoned onto the advantage of so managing their moneys as to achieve, at a consolidated, central checking account, practically zero balances. For the banks promoting this switch of idle money to easily accessible interest-bearing deposits, there were similar economies: reserve requirements on such deposits are much lower." 
1. "Transactions" money is money used as a 
a) store of value b) unit of account 
c) medium of exchange d) standard of deferred payment 
2. What is the significance of underestimating transactions money? 
a) monetary policy will be overstimulating the economy 
b) monetary policy will be putting a drag on the economy 
c) there is a need for money that the central bank should be meeting 
d) the economy has too much money and therefore not enough spending 45 
3. Why would corporations want to achieve zero balances in their checking accounts ? 
a) to earn more interest b) to avoid paying taxes 
c) to keep a low profile d) to circumvent banking regulations 
4. How do the banks gain from this corporate behavior? 
a) more loans can be made b) tax-free profits can be made 
c) interest rates can be increased d) by circumventing banking regulations

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