Macro Test #4 AP Classroom Practice Questions

A commercial bank is facing the conditions given above. If the reserve requirement is 12 percent and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is

$3,000

If the reserve requirement is 20 percent, the existence of $100 worth of excess reserves in the banking system can lead to a maximum expansion of the money supply equal to

$500

Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is

$8,000

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

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

If on receiving a checking deposit of $300 a bank's excess reserves increased by $255, the required reserve ratio must be

15%

Which of the following is true about the Phillips curve?

A change in aggregate demand does not shift the long-run Phillips curve (LRPC).

During a mild recession, if policymakers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate?

A decrease in administered interest rates

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

Which of the following relationships is illustrated by a short-run Phillips curve?

A decrease in the rate of inflation is accompanied by an increase in the rate of unemployment.

The required reserve ratio is 0.2 and the central bank sells $1 million in securities. Assuming the banking system has limited reserves, 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

An increase in aggregate demand will cause which of the following?

A movement along a given short-run Phillips curve

Which of the following is true for bonds but not for stocks

Bonds are interest-bearing assets

Which of the following is considered the most liquid asset

Currency

Which of the following would be included as a liability on a commercial bank's balance sheet?

Demand deposits

If investors feel that business conditions will deteriorate in the future, the demand for loans and real interest rate in the loanable funds market will change in which of the following ways in the short run?

Demand for Loans- Decreases Real Interest Rate- Decreases

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

Increasing administered interest rates

Assuming a banking system with limited reserves, which of the following actions by the central bank reduces the ability of the banking system to create money?

Increasing the reserve requirement

Assuming a banking system with limited reserves, when the central bank buys government securities on the open market, which of the following will decrease in the short run?

Interest rates

Assuming a banking system with limited reserves, which of the following is most likely to occur when the central bank buys government bonds on the open market?

Interest rates will decrease.

Which of the following is true of the long-run Phillips curve?

It is vertical at the natural rate of unemployment.

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- Increases Bond Prices- Decreases

If the Federal Reserve pursues a contractionary monetary policy, output and the price level will change in which of the following ways in the short run?

Output- Decreases Price Level- Decreases

Suppose that a national government increased deficit spending on goods and services, increasing its demand for loanable funds In the long run, this policy would most likely result in which of the following changes in this country?

Real Interest Rate- Increases Investment- Decreases

Open market operations refer to which of the following activities?

The buying and selling of government securities by the central bank

Which of the following will occur in the money market when the aggregate price level increases?

The demand for money will increase and nominal interest rates will increase.

Which of the following is true when interest rates rise?

The opportunity cost of holding cash increases.

Which of the following will happen when interest rates increase in an economy?

The opportunity cost of holding money will increase.

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

According to the short-run Phillips curve, a contractionary fiscal policy will result in

a decrease in inflation and an increase in unemployment

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

an increase in the money supply

Assume that the reserve requirement is 20 percent, but banks voluntarily keep some excess reserves. A $1 million increase in new reserves will result in

an increase in the money supply of less than $5 million

The federal funds rate is the interest rate that

banks charge one another for short-term loans

A central bank can increase the money supply by

buying government bonds on the open market

Crowding out occurs when

government borrowing to finance its spending decreases private sector investment

If government spending increases and crowds out an equal amount of private investment in physical capital, then the increase in government spending will

leave real output and the price level unchanged

Commercial banks can create money by

lending excess reserves to customers

Changes in which of the following will change the money supply?

open market operations

The Federal Reserve can cause an increase in interest rates in an attempt to

reduce inflation

The demand for money increases when national income increases because

spending on goods and services increases