AP Macro - U4

"The price for a ticket to the Super Bowl is $500." This statement best illustrates money used as a

• Illiquid asset 

• Liquid asset 

• Unit of account 

• Medium of exchange 

• Store of value 

If you use money as a store of value, you would be

• Buying a new watch 

• Searching the Internet for a deal on a new car 

• Putting money into a savings account 

• Lending money to friend 

• Paying for gas on your credit card  

Which of the following is NOT part of M1?

• Savings deposits  

• Checkable deposits 

• Coins 

• Travelers checks 

• Currency

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

• The amount of investment spending will increase.

• Interest rates will increase

• The supply of money will decrease

• Deflation 

• The aggregate demand will increase 

Which if the following is true for the money market graph?

• The demand for money is vertical because of autonomous spending

• The supply of money is downward sloping  

• There is no relationship between the nominal interest rate and the quantity of money demanded in the long-run 

• There is an inverse relationship between the nominal interest rate and the quantity of money demanded 

• An increase in the nominal interest rate will shift the money supply to the right 

Fractional reserve banking means that banks are required to

• Charge the same interest rate on all their loans  

• 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 

• Keep part of their demand deposits as reserves 

Banks may not be able to create the maximum amount of money from a new deposit as a result of

• Government banking regulation 

• Increased demand for investment 

• Decrease in required reserve ratio 

• The banks can only make a set number of loans 

• Individuals holding a larger portion of their assets as cash 

When an economy is at full employment, an expansionary monetary policy will lead to

• Lower interest rates and more investment  

• Lower interest rates and less investment 

• Higher interest rates and lower prices 

• Higher interest rates and higher prices 

• Higher interest rates and lower price levels 

If the Federal Reserve raises the discount rate, how are interest rates and real GDP affected?

• Interest Rates / Real GDP

  Decrease / Decrease 

• Interest Rates / Real GDP

  Increase / Increase 

• Interest Rates / Real GDP

  Decrease / Increase 

• Interest Rates / Real GDP

  Increase / Decrease 

• Interest Rates / Real GDP

  Decrease / No change

To eliminate an inflationary gap, the Federal Reserve might

• Increase personal income taxes 

• Increase in the money supply 

• Decrease the federal funds rate 

• Buy bonds on the open market 

• Sell bonds on the open market