4.3-4.5 AP Macro

4.3-4.5 AP Macro

Let's do some practice....

Multiple Choice

Under a fractional reserve banking system, banks are required to

• keep part of their demand deposits as reserves

• expand the money supply when requested by the central bank

• insure their deposits against losses and bank runs

• pay a fraction of their interest income in taxes

• charge the same interest rate on all their loans

Multiple Choice

Which of the following describes a major difference between stocks and bonds?

• Stocks represent ownership in a corporation, and bonds represent a loan to a corporation.

• Bonds represent ownership in a corporation, and stocks represent a loan to a corporation.

• Stocks are counted in gross domestic product, and bonds are not counted.

• Bonds are counted in gross domestic product, and stocks are not counted.

• Bonds pay dividends, and stocks earn interest.

Multiple Choice

Which of the following will happen when interest rates increase in an economy?

• The cost of borrowing will decrease.

• The spending multiplier will decrease.

• Investment spending will increase.

• The price of previously issued bonds will increase.

• The opportunity cost of holding money will increase.

Multiple Choice

If the interest rate on loans before adjusting for inflation is 9%, and the expected inflation rate is 4%, then which of the following must be true?

• Lenders are expected to receive an additional 4% on their loaned funds.

• Borrowers are expected to pay an additional 4% on their borrowed funds.

• The expected real interest rate is 9%.

• The expected real interest rate is 13%.

• The nominal interest rate is 9%.

Multiple Choice

Which of the following best describes the nominal interest rate on a mortgage loan that a bank offers to a customer?

• It is the real interest rate divided by the price level.

• It is the real interest rate minus the expected inflation rate.

• It is the interest rate charged by the bank.

• It is the interest rate charged by the bank minus the expected inflation rate.

• It is the interest rate charged by the bank minus the interest rate the bank pays to its depositors.

Jot down the amounts for practice..

Fill in the Blanks

Multiple Choice

Suppose that an individual deposits $5,000 of cash into her checking account. What is the immediate effect of the cash deposit on the M1 measure of the money supply?

• Increase

• Decrease

• No change

Fill in the Blanks

Fill in the Blanks

Fill in the Blanks

Fill in the Blanks

Fill in the Blanks

Balance sheet for Bank of Hack. Identify the following immediately after Pearson withdraws $1,000 of cash from the bank.

Fill in the Blanks

Fill in the Blanks

Fill in the Blanks

Fill in the Blanks

Fill in the Blanks

Fast Review....

Get ready!

Multiple Choice

Money creation by the banking system will decrease if

• the velocity of money increases

• real interest rates are increase

• unemployment is low

• people keep cash in their mattresses

Multiple Choice

Our current money is _______ money. Meaning that it has value because the government has ordered that it is an acceptable means to pay debts.

• Commodity
• Fiat
• Representative
• Funny

Multiple Choice

1/required reserve ratio determines the

• required reserves

• excess reserves

• lending capacity

• money multiplier

Multiple Choice

When money is used to acquire goods and services, it is functioning as a

• Medium of exchange.

• Store of value.

• Standard of account.

• Equation of value.

Multiple Choice

What is the price paid for the use of borrowed money?

• Principal
• Interest
• Default
• FDIC

Multiple Choice

Which of the following is an example of money as a unit of account?

• Purchasing a toy for $8.99
• Lending a friend $25.00
• Opening a savings account at a bank
• Checking the price of a camera at several stores before buying it at the lowest price

Multiple Choice

If Takeoff withdraws a $100 bill from his checking account and Quavo deposits another $100 bill in his savings account, by how much will M1 and M2 change?

• M1 will increase, and M2 will increase.

• Both M1 and M2 will remain the same.

• M1 will decrease, but M2 will remain the same.

• M2 will decrease by $100.

• M1 will remain the same, and M2 will increase.

Identify the change in the following immediately after Jessie deposits $1,000 of cash into the bank

Multiple Choice

Change in reserve ratio

• no change

• increase

• decrease

Multiple Choice

Change in demand deposits

• no change

• increase $1000

• decrease $1000

• Increase $950

• Decrease $950

Multiple Choice

Change in Customer loans

• no change

• increase $1000

• decrease $1000

• Increase $950

• Decrease $950

Multiple Choice

Change in Excess reserves

• no change

• increase $1000

• decrease $1000

• Increase $950

• Decrease $950

Multiple Choice

Change in Required reserves

• no change

• increase $100

• decrease $100

• Increase $50

• Decrease $50