AP Macroeconomics unit 4 review

The narrowest definition of money, M1, includes which of the following:

Savings accounts

Assume a country has limited reserves In its banking system. To decrease the money supply, the country's central bank can do which of the following?

Sell government bonds

Commercial banks can create money by:

lending excess reserves to customers

The annual inflation rate is expected to be 5% over the next 3 years. Juan plans to take out a 3-year loan to purchase an automobile. If Juan decides not to take out the loan if the real interest rate exceeds 3%, the highest nominal interest rate he is willing to pay is:

8%

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

Bonds are interest-bearing assets.

Assume that Atlantic National Bank has demand deposits of $100,000 and no excess reserves, and that the reserve requirement is 10%. A customer withdraws $5,000 from the bank.To meet the reserve requirement, the bank must increase its reserves by:

$4,500

Assume that the reserve requirement is 20%. 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

Assume the nominal interest rate on a 15-year fixed-rate mortgage loan is 5%. If the expected inflation rate is 2%, the expected real interest rate is

3%

Assume a banking system with limited reserves. During a recession, an increase in the money supply would result in which of the following?

A decrease in interest rates, an increase in interest-sensitive spending, and an increase in real output

Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10 percent?

Bank B can increase its loans by $40.

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.

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

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.

Fred Jones withdraws $1,000 in cash from his savings account. What immediate effect does this transaction have on the monetary aggregate measures of M1 and M2?

M1 will not change; M2 will not change

If the central bank raises the required reserve ratio in a banking system with limited reserves, the money multiplier and the money supply will change in which of the following ways?

Money multiplier decreases; money supply decreases

ABC Bank is a commercial bank in Country X Assume the required reseive ratio is 25% und banks in Country X keep no excess reserves. If Maria deposits $1,000 in cash at ABC Bank, what will happen to the money supply after all adjustments are made in the banking system?

The money supply will increase by a maximum of $3,000

for a country whose banking system has limited reserves, an open-market operation by the country's central bank to reduce the unemployment rate would be to

buy bonds to decrease the interest rate and to increase aggregate demand

Assume that the reserve requirement for demand deposits is 20%, that banks hold no excess reserves, and that the public holds no currency. If the banking system has limited reserves and the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will

decrease by $50,000

The amount of money that the public wants to hold in the form of cash will

decrease if interest rates increase

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

interest rate decreases, qty of money no change