AP Macro Unit 4

Assume the required reserve ratio is .2. If a bank initially has no excess Reserves and $100,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is

$80,000

If on receiving a checking deposit of $500 a bank's excess reserves increased by $400, the required reserve must be

20%

Suppose businesses are fearful there will be a recession in the near future. Which of the following best describes the impact of this belief on demand for loan-able funds and interest rate?

Demand for loan-able funds decreases/ interest rate decrease

Which of the following will most likely occur in an economy if more money is demanded than is supplied?

Interest rates will increase

If required reserves is 10% and that bank receives a new demand deposit of $300. Which of the following will most likely occur in the bank's balance sheet?

Liabilities increase by $300 & required reserves increase by $30

An open market purchase of bonds by the FED will most likely change the money supply, the interest rate, and the unemployment rate in which of the following ways?

Money supply increase, interest rate decrease, unemployment rate decrease

Assume that a perfectly competitive financial market for loan-able funds is in equilibrium. Which of the following is most likely to occur to the quantity demanded and the quantity supplied of loan-able funds if the government puts a cap (ceiling) on the interest rate?

Quantity demanded increase, quantity supplied decrease

If the supply for the loan-able funds increases, what will happen to the real interest rates and investment?

Real interest rates decrease/government investment increase

Which of the following is NOT part of M1?

Savings deposits

To eliminate an inflationary gap, the Federal Reserve might

Sell bonds on the open market

When consumers hold money rather than bonds they expect the interest rate to increase in the future, they are holding money for what purposes?

Speculation

Open market operations refer to which of the following activities?

The buying and selling of government securities by the Federal Reserve

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

If the Federal Reserve conducts an open market purchase of bonds, we can expect which of the following to occur in the short run?

There will be a movement to the left along a short-run Phillips Curve

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

Unit of account

The federal funds rate is the interest rate that

banks charge one another for short-term loans

The federal reserve can increase the money supply by

buying bonds on the open market

The Federal Reserve can change the US Money supply by changing

discount rate

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

If the Fed institutes a policy to reduce inflation, which of the following is most likely to increase?

interest rates

If the federal reserve raises the discount rate, how are interest rates and real GDP affected.

interest rates increase /real GDP decrease

Fractional reserve banking means that banks are required to

keep part of their demand deposits as reserves

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

lower interest rates and more investment

If you use money as a store of value, you would be

putting money into a savings account

When government spending cause an increase in real interest rates, gross private domestic investment

will experience crowding out