AP MACRO UNIT 4

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

An increase in nominal interest rates

All of the following are true regarding money except

Commodity money is used more than fiat money today

To eliminate an inflationary gap, the Federal Reserve might

Sell bonds on the open market

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

interest rates

which of the following is NOT part of M1

savings deposits

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 tike to the Super Bowl is $500." This statement best illustrates money used as a

unit of account

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

will experience crowding-out

Assume the required reserve ration 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

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

Assume that the nominal interest rate that a bank charged is 7% and the expected inflation rate was %5. If the actual inflation rate turned out to by 11%, what is the expected real interest rate and the actual real interest rate? expected/actual

2%/-4%

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

20%

Which of the following is the best example of fractional reserve banking?

A bank buys $7000 of U.S Treasuries with excess reserves

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

Which of the following is the best example of the crowding-out effect?

Deficit spending results in high interest rates that decrease private investment

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

Demand deposits are considered a liability

Which of the following best explains why the money demand curve is downward sloping?

Higher interest rates encourage people to exchange money for other interest-bearing assets

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 central banks use of open market operations?

Interest rates will decrease when the central bank buys bonds

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 regarding the federal funds rate?

It is the interest rate that banks charge each other

The required reserve ratio is 10% and the central bank sells $2 million in bonds to banks. If banks loan out all their excess reserves and there are no leakages, what will happen to the money supply?

It will decrease by $20 million

Fractional reserve banking means that banks are required to

Keep part of their demand deposits as reserves

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

Putting money into a savings account

The Federal Reserve can increase the federal funds rate most effectively by

Selling government bonds

Open market operations refer to which of the following activities?

The buying and selling of government securities by the Federal Reserve

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

Which of the above is(are) an asset for the ACDC Bank

certification of deposits issued to ACDC's customers, vault cash, and money that ACDC has deposited with the Federal Reserve

The Federal Reserve can change the US money supply by

changing the discount rate

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

increase by $300/increase by $30

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

lower interest rates and more investment

Which of the following is an appropriate monetary policy used by central bank to reduce inflation?

selling government securities

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

speculation