AP Macro Unit 5
If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000 ?
$9,000
Which of the following would lead to an increase in nominal interest rates?
A contractionary monetary policy accompanied by an increase in the demand for money
When a central bank sells securities in the open market, which of the following set of events is most likely to follow?
A decrease in the money supply, an increase in interest rates, and a decrease in aggregate demand
The required reserve ratio is 0.2 and the Federal Reserve sells $1 million in securities. If there are no leakages and banks do not hold excess reserves, then which of the following is the change in the money supply?
A decrease of $5 million
Assume the monetary base has increased as a result of actions taken by the central bank. Which of the following is a reason the money supply would not increase by as much as the money multiplier would suggest?
Banks hold excess reserves.
If the public's desire to hold money as currency increases, what will the impact be on the banking system?
Banks would be less able to expand credit.
Which of the following would be included as a liability on a commercial bank's balance sheet?
Demand deposits
An increase in the demand for loanable funds could be best explained by which of the following?
Firms are optimistic about the future performance of the country's economy.
Under which of the following circumstances would increasing the money supply be most effective in increasing real gross domestic product?
Interest Rates High, Employment Less than Full, Business Optimism High
When the Federal Reserve buys government securities on the open market, which of the following will decrease in the short run?
Interest rates
Which of the following will most likely occur in an economy if more money is demanded than is supplied?
Interest rates will increase.
Which of the following is true of the quantity of money demanded?
It falls when interest rates rise, because the opportunity cost of holding money increases
Assume that the reserve requirement is 15 percent and that a bank receives a new checking deposit of $200. Which of the following will most likely occur in the bank's balance sheet?
Liabilities: Increase by $200Required Reserves: Increase by $30
Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most likely change in which of the following ways?
Nominal Interest Rates Increase and Bond prices decrease
During a mild recession, if policymakers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate?
Purchase of government securities by the Federal Reserve
Open market operations refer to which of the following activities?
The buying and selling of government securities by the Federal Reserve
The purchase of bonds by the Federal Reserve will have the greatest effect on real gross domestic product if which of the following situations exists in the economy?
The required reserve ratio is low, and the interest rate has a large effect on investment spending.
If the Federal Reserve sells a significant amount of government securities in the open market, which of the following will occur?
The total amount of loans made by commercial banks will decrease.
The federal funds rate is the interest rate that
banks charge one another for short-term loans
If the reserve requirement is 25 percent and banks hold no excess reserves, an open market sale of $400,000 of government securities by the Federal Reserve will
decrease the money supply by up to $1.6 million
All of the following are components of the money supply in the United States EXCEPT
gold bullion
An increase in government spending with no change in taxes leads to a
higher interest rate
Under a fractional reserve banking system, banks are required to
keep part of their demand deposits as reserves
Commercial banks can create money by
lending excess reserves to customers
The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when
people hold a portion of their money in the form of currency
The demand for money increases when national income increases because
spending on goods and services increases
