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
