ap econ unit 4
If the required reserve ratio is 10 percent, what is the maximum change in the money supply from John's deposit of $50,000 cash into his checking account?
$450,000
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: decrease real interest rate: decrease
Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long-term loan agreement with fixed nominal interest rates of 5 percent. If the actual inflation rate were lower than expected, then which of the following would be true?
the lender would benefit
The demand curve for money shifts to the right when
the nominal gross domestic product increases
Which of the following is true when interest rates rise?
the opportunity cost of holding cash increases
If businesses become optimistic about the profitability of investments in an economy, which of the following will happen in the loanable funds market in the short run?
the real interest rate will increase
Assume that banks hold no excess reserves. A decrease in the required reserve ratio will cause total reserves in banks, the money multiplier, and the money supply to change in which of the following ways?
total reserves: no change money multiplier: increase money supply: increase
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: increases M2: no change
Which of the following shifts the money demand curve to the right?
an increase in the price level
All of the following changes will shift the investment demand curve to the right EXCEPT
an increase in the real interest rate
Which of the following will most likely result in an increase in aggregate demand?
an open-market purchase of government bonds by the central bank
Which of the following will lower the prices of a country's outstanding government bonds?
an outflow of financial capital to other countries
If the public's desire to hold money as currency increases, what will the impact be on the banking system?
banks would be less able to expand credit
assume that a country's government increases borrowing. What will most likely happen to the prices of previously issued bonds and the price level in the short run?
bond prices: decrease Price level increase
investment in physical capital is most likely to occur as a result of an increase in
business confidence
An open-market operation by a country's central bank to reduce the unemployment rate would be to
buy bonds to decrease the interest rate and to increase aggregate demand
the real interest rate earned is the
cost of borrowing adjusted for the rate of change in the price level
The aggregate demand curve is downward sloping because an increase in the general price level will cause the demand for money, interest rates, and investment to change in which of the following ways?
demand for money: increase interest rates: increase investment: decrease
Which of the following will most likely occur in an economy if more money is demanded than is supplied?
interest rates will increase
assume the government finances its spending by borrowing from the public. If the government increases deficit spending, the price of previously issued bonds and the real interest rate will change in which of the following ways?
Price of bonds: decrease real interest rate: increase
Which of the following most undermines the ability of a nation's currency to store value
a decrease in the purchasing power of the currency
In the short run, a reduction in the money supply will cause
a leftward shift in the aggregate demand curve
which of the following will increase the supply of loanable funds
an increase in household saving
In the short run, a tight monetary policy tends to cause
an increase in interest rate and a decrease in private investment
Which of the following will cause an increase in the equilibrium real interest rate?
an increase in investment demand
expansionary fiscal policy will most likely result in
an increase in nominal interest rates
A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?
nominal interest rate: increase aggregate demand: decrease
When the central bank sells gov bonds on the open market, which of the following will most likely increase?
nominal interest rates
In the narrowest definition of money, M1, savings accounts are excluded because they are
not a medium of exchange
The money demand curve is downward sloping because
people hold less money as the opportunity cost of holding money rises
In the short run, government deficit spending will most likely
raise the nominal interest rates
When there is excess demand in the loanable funds market, which of the following will occur?
real interest rates will increase
The loanable funds market is best described as bringing together
savers and borrowers
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
When Stephanie took out a one-year fixed-rate loan, she expected to pay a real interest rate of 3 percent. At the end of the year, the real interest rate had fallen to 2 percent. Which of the following could have caused the decrease in the real interest rate?
the actual inflation rate was greater than the expected inflation rate
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 a defining characteristic of a fractional reserve banking system?
the fact that banks retain an amount of bank reserves that is less than the amount of customer demand deposits
which of the following measures the opportunity cost of holding currency
the forgone interest on alternative assets
