AP Macro Unit 4: Money & Banking System

Which of the following is the source of the supply of loanable funds?

• The stock market

• Investors

• Banks and mutual funds

• Savers

the money supply increases, what happens in the money market? (Assuming money demand is downward sloping)

• The nominal interest rate rises

• The nominal interest rate falls

• Transaction demand for money falls

• The nominal interest rate does not change

The quantity of investment demanded most likely increases when

• real GDP increases

• the cost of acquiring and maintaining capital equipment rises

• the real rate of interest rates decreases

• taxes on business investment rise

If the nominal interest rate is 6 percent and the expected inflation rate is 4 percent, what is the real interest rate?

• 10%

• 4%

• 2%

• -2%

If $1000 is deposited into a checking account and excess reserves increase by $700, the reserve ratio must be

• 70%

• 30%

• 40%

• 90%

To an economist, investment means:

• Purchasing bonds

• Purchasing capital

• Purchasing stocks

• Putting your money in a savings account

During mild recessions, if policymakers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate?

• Purchase of government securities by the Federal Reserve

• An increase in government expenditures only

• An increase in transfer payments

• Equal increases in government expenditures and taxes

If the Federal Reserve sells a significant amount of government securities in the open-market, which of the following will occur?

• The total amount of loans made by commercial banks will increase

• The total amount of loans made by commercial banks will decrease

• Rates of interest and the amount of loans made by commercial banks will remain unchanged

• The money supply will increase

The purchase of bonds by the Federal Reserve will have the greatest effect on real gross domestic product if which of the following situations exists in an economy?

• The required reserve ratio is low, and the interest rate has a large effect on investment spending

• The required reserve ratio is high, and the interest rate has a small effect on investment spending

• The required reserve ratio is high, and the interest rate has a large effect on investment spending

• The marginal propensity to consume is high, and the interest rate has a small effect on investment spending

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

• The amount of investment spending will increase

• Interest rates will decrease

• Interest rates will increase

• The demand curve for money will shift to the right