AP Macro Unit 4 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.

Suppose an economy has $200,000 of demand deposits and $40,000 of excess reserves with a 10% required reserve ratio. If the monetary authorities raise the required reserve ratio to 20%, then which of the following will likely follow?

• The excess reserves will rise by 10%.
• The excess reserves will fall by 10%.
• There will be no more excess reserves in the system.
• Excess reserves will decrease by $20,000.

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.

The discount rate is the interest rate the Fed charges on loans to:

• consumers.
• the federal government.
• state governments.
• banks.

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.

If the reserve ratio is 25%, and the money supply increases by $100,000. The initial reserve injection by Federal Reserve was:

• $2500.
• $10,000.
• $4000.
• $25,000.

The federal funds rate is the rate:

• a private borrower would pay a bank for a loan.
• one bank would pay another bank for a loan.
• a bank would pay the Federal Reserve for a loan.
• the Federal Reserve would pay to borrow money from government.

When the government spends more money than they take in each year is called a _________?

• Debt
• Deficit
• Surplus
• Expansionary