AP Macro Unit 4 (quizziz)

A commercial bank holds $500,000 in demand deposit liabilities and $120,000 in reserves. If the required reserve ratio is 20 percent, which of the following is the maximum amount by which this single commercial bank and the maximum amount by which the banking system can increase loans? (amount created by single bank, amount created by banking system)

$20,000, $100,000

Suppose that all banks hold no excess reserves and the reserve requirement is 20%. If Paula deposits $200 she earned for babysitting in the bank, what is the maximum increase in the total money supply?

$800 (MM= 1/.20=5) (5 x 200= 1,000) (1,000-200= 800)

If the required reserve requirement is 10%, the Money Multiplier is?

10 (MM= 1/rr)

If the legal reserve requirement is 25 percent, the value of the simple deposit expansion multiplier is

4 (1/rr) (1/.25 =4)

Which of the following are true statements about the federal funds rate?

It is the interest rate that banks charge each other for short-term loans It is influenced by open market operations

Nominal GDP is represented in the equation of exchange as

PQ

A decrease in the supply of money will cause which of the following?

an increase in nominal interest rates

Which of the following actions by the Federal Reserve will result in an increase in banks' excess reserves?

buying bonds on the open market

Which of the following does the Federal Reserve use most often to combat a recession?

buying securities

To reduce inflation, the Federal Reserve could

contract the money supply in order to raise interest rates, which decreases investment

Which of the following represent a liability on a bank's balance statement

demand deposits

Which of the following is true regarding the balance sheet of a commercial bank?

demand deposits are considered a liability

A decrease in the mortgage rate will cause which of the following to happen in the loanable funds market?

demand will increase

The neutrality of money refers to the situation where

increases in the money supply eventually result in no change in real output

Banks may not be able to create the maximum amount of money from a new deposit as a result of

individuals holding a larger portion of their assets as cash

Which of the following is true regarding the federal funds rate?

it is the interest rate that banks charge each other

Suppose the Federal Reserve buys $400,000 worth of securities from the securities dealers on the open market. If the reserve requirement is 20 percent and the banks hold no excess reserves, what will happen to the total money supply?

it will EXPAND by $2,000,000

When an economy is at full-employment, an expansionary monetary policy will lead to

lower interest rates and more investment

When money is used as a standard of value, a person is

making price comparisons among products

Expansionary monetary policy results in which of the following in the short run?

money supply increases nominal interest rate decreases real interest rate decrease

The real interest rate the

nominal interest rate minus the expected inflation rate

All of the following are financial assets except

required reserves

Which of the following are assets on a banks balance sheet?

reserves and loans

Reserves, the money supply, and interest rates are most likely to change in which of the following ways when the Fed sells bonds?

reserves decrease money supply decreases interest rates increase

What will happen to the supply of loanable funds and the equilibrium interest rate if the Federal Reserve buys government securities

supply increases interest rate decrease

Aggregate demand and aggregate supply analysis suggest that, in the short run, an expansionary monetary policy will shift

the AD curve to the right

Which of the following is true for the money market graph?

there is an inverse relationship between the nominal interest rate and the quantity of money demanded

"The price for a ticket to the Super Bowl is $500." This statement best illustrates money used as a

unit of account

The Federal Reserve's (Central Bank) use of open market operations

will result in interest rates falling when the Fed buys bonds