AP Macro_Monetary Policy Review

Use Table 25-1. If the reserve ratio is 25%, deposits are:

• $5,000.
• $15,000.
• $60,000.
• $80,000.

Which of the following would be the initial effect of an individual making a $10,000 cash deposit in a bank?

• The money supply would rise by $10,000.
• The money supply would fall by $10,000.
• The money supply would not be affected by the deposit.
• The money supply would fall, but by less than the $10,000 deposit.

A reserve ratio is the:

• proportion of cash and security reserves the bank needs to hold.
• fraction of deposits that the bank is required to hold.
• loan to deposit ratio in the bank's balance sheet.
• money belonging to the bank's largest depositors.

Suppose the banking system does NOT hold excess reserves and the reserve ratio is 20%. If Sam deposits $500 of cash into his checking account, the banking system can increase the money supply by:

• $5,000.
• $2,000.
• $2,500.
• $400.

To _______ the money supply, the Fed could ________.

• increase; lower the reserve requirements
• decrease; lower the discount rate
• increase; raise the federal funds rate
• decrease; conduct open-market purchases

Suppose the Federal Reserve were to engage in open-market operations by buying $100 million of U.S. Treasury bills. Which of the following would be the end result of such an action?

• The money supply would stay the same.
• The money supply would decrease by $100 million.
• The money supply would increase by $100 million.
• The money supply would increase by more than $100 million.

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

• The stock market

• Investors

• Banks and mutual funds

• Savers

If the money supply increases, what is the effect in the money market?

• The nominal interest rate rises

• The nominal interest rate falls

• Transaction demand for money falls

• The nominal interest rate does not change

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%