AP Macroeconomics Unit 4 review

The table below gives the value of various monetary measures , in millions of dollars. Based on the table above , what is the value of M1 , a measure of the money supply ?

$ 1,120 million

Assume that Linda deposits in her checking account the $ 1,000 cash she was keeping at home for an emergency . If the required reserve ratio is 0.20 , what is the maximum change in the money supply from her deposit ?

$ 4,000

Suppose the required reserve ratio is 20 percent and a single bank with no excess reserves receives a $ 100 deposit from a new customer . The bank now has excess reserves equal to

$ 80

The table gives the value of selected assets and liabilities of a commercial bank's T - account .

5

In the country of Agronomia , banks charge 10 percent interest on all loans . If the general price level has been increasing at the rate of 4 percent per year , the real rate of interest in Agronomia is

6 %

Assuming a banking system with limited reserves , which of the following set of events is most likely to follow when a central bank sells securities in the open market ?

A decrease in the money supply , an increase in interest rates , and a decrease in aggregate demand

The diagram shows the effect of a monetary policy action on aggregate demand . Which of the following will shift the aggregate demand curve in the direction shown in the diagram above ?

A decrease in the policy rate

When an economy is operating below the full employment level of output , an appropriate monetary policy would be to decrease which of the following ?

Administered interest rates

Which of the following will lead to a decrease in a nation's money supply in a country where the banking system has limited reserves ?

An increase in reserve requirements

Which of the following shifts the money demand curve to the right ?

An increase in the price level

Assume a country's banking system has limited reserves . To counter a recession , the central bank might pursue which of the following actions ?

Decreasing the discount rate and buying securities on the open market

An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways ?

Demand for Money Increase Nominal Interest Rate increases

Which of the following concepts can be illustrated using the production possibilities curve ? I. Choice II . Scarcity III . Price level IV . Opportunity cost

I , II , and IV only

Which of the following accurately describes the difference between how open market operations are used in a banking system with limited reserves compared to a banking system with ample reserves

In a banking system with limited reserves , open market operations are used to indirectly influence the nominal interest rate by changing the money supply , whereas in a banking system with ample reserves , open market operations are used to maintain sufficient reserves .

Which of the following government policies can reduce the rate of inflation in the short run ?

Increasing administered interest rates

Which of the following sequences of events would occur if the Federal Reserve implemented contractionary monetary policy ?

Interest rates increase , investment and consumption spending decrease , aggregate demand decreases , and output and prices decrease .

When a central bank conducts open - market bond sales in a banking system with limited reserves , the money supply , interest rate , and aggregate demand will change in which of the following ways in the short run ?

Money Supply Decrease Interest Rate Increases Aggregate Demand Decreases

An increase in administered interest rates will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run ?

Nominal Interest Rate increases Aggregate Demand Decrease

Nominal interest rates and prices of previously issued bonds will be affected in which of the following ways when money demand exceeds money supply ?

Nominal interest rates will increase , and bond prices will decrease .

In the short run , an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product ( GDP ) ?

Price Level Increase RGDP- increases

Which Federal Reserve action can shift the aggregate demand curve to the left ?

Raising interest on reserves

Ms. Smith withdraws $ 1,000 from her safe and deposits the money in a bank . If the bank holds no excess reserves and the reserve requirement is 10 percent , how will this deposit increase the bank's required reserves and the bank's loans ?

Required Reserves $ 100 Loans $900

Assuming a banking system with limited reserves , which of the following is a monetary policy action a central bank would implement to control inflation ?

Sell government bonds to the public

Assuming a banking system with limited reserves , which of the following is a monetary policy aimed at increasing the equilibrium interest rate in the money market ?

Selling bonds on the open market

Open market operations refer to which of the following activities ?

The buying and selling of government securities by the central bank

Assume a country's banking system has limited reserves . Which of the following policy actions will directly increase the money supply ?

The central bank purchases government bonds on the open market .

Which of the following statements about inflation is true ?

The expected inflation rate is the difference between nominal and real interest rates .

Which of the following accurately describes the federal funds rate ?

The interest rate that banks charge other banks for overnight loans

An increase in which of the following will cause an increase in the demand for money ?

The price level

Assume a country's banking system has limited reserves . Which event would have caused the shift of the money supply curve from S₁ to S2 in the money market shown above ?

The purchase of government bonds on the open market by the central bank

Assume the banking system has limited reserves and the economy is currently in long - run equilibrium . An increase in the money supply will affect unemployment in the short run and in the long run in which of the following ways ?

Unemployment will decrease below the natural rate of unemployment in the short run and increase back to the natural rate of unemployment in the long run .

An inflationary gap can be eliminated by all of the following EXCEPT

an increase in the money supply

Assume a country's banking system has limited reserves . To counteract a recession , the central bank should

buy securities on the open market and lower the discount rate

Open market operations take place when the

central bank buys or sells government bonds

Of the following the most liquid asset is

currency

Assume a country's banking system has limited reserves . 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 central bank will

decrease the money supply by up to $ 1.6 million

The Federal Reserve decreases the federal funds rate by

decreasing its administered interest rates

A production possibilities curve that is concave to the origin ( bowed out ) implies that as more of a good is produced , the opportunity cost

increases

The demand for money increases when national income increases because

spending on goods and services increases

The demand curve for money shifts to the right when

the nominal gross domestic product increases