AP Macro Unit 4

Money supply will increase, interest rate will decrease, and unemployment rate will decrease

An open market purchase of bonds by the Fed will most likely change the money supply, the interest rate, and the unemployment rate in which of the following ways?

Unit of account

"The price of a ticket to the Super Bowl is $500." This statement best illustrates money used as a

Quantity demanded will increase and quantity supplied will decrease

Assume that a perfectly competitive financial market for loanable funds is in equilibrium. Which of the following is most likely to occur to the quantity demanded and the quantity supplied of the loanable funds if the government puts a cap (ceiling) on the interest rate?

$80,000

Assume the required reserve ratio is 0.2. 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

Individuals holding a larger portion of their assets as cash

Banks may not be able to create the maximum amount of money from a new deposit as a result of

Keep part of their demand deposits as reserves

Fractional reserve banking means that banks are required to

20%

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

Interest rates

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

There will be a movement to the left along a short-run Phillips Curve

If the Federal Reserve conducts an open market purchase of bonds, we can expect which of the following to occur in the short-run?

Interest rates increases and real GDP decreases

If the Federal Reserve raises the discount rate, how are interest rates and the real GDP affected?

Liabilities increase by $300 and required reserves increase by $30

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

Real interest rates will decrease and investment will increase

If the supply for the loanable funds increases, what will happen to real interest rates and investment?

Putting money into a savings account

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

The buying and selling of government securities by the Federal Reserve

Open market operations refer to which of the following activities?

Demand for loanable funds will decrease and interest rate will decrease

Suppose a business is fearful that there will be a recession in the near future. Which of the following best describes the impact of this belief on demand for loanable funds and interest rate?

Discount rate

The Federal Reserve can change the U.S. money supply by changing

Buying bonds on the open market

The Federal Reserve can increase the money supply by

Banks charge one another for short-term loans

The federal funds rate is the interest rate that

Sell bonds on the open market

To eliminate an inflationary gap, the Federal Reserve might

Lower interest rates and more investment

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

Speculation

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

Will experience crowding-out

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

Savings deposits

Which of the following is NOT part of M1?

II (Certificates of Deposits issued to ACDC's customers), III (Vault cash), and IV (Money that ACDC has deposited with the Federal Reserve) only

Which of the following is an asset for the ACDC Bank?

There is an inverse relationship between the nominal interest rate and the quantity of money demanded

Which of the following is true for the money market graph?

Interest rates will increase

Which of the following will most likely occur in an economy if more money is demanded than is supplied?