AP Macro Unit 4-6 Review

To move the economy to full employment, the central bank decides that the federal funds rate must be increased. The appropriate open market operation is to _____, which _____the money supply, _____ AD and fight______

• OMO: Buy bonds, MS: increase, AD: increase, To fight: unemployment
• OMO: Buy bonds, MS: increase, AD: increase, To fight: inflation
• OMO: Sell bonds, MS: decrease, AD: increase, To fight: inflation
• OMO: Sell bonds, MS: decrease, AD: decrease, To fight: inflation

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

• The nominal interest rates rises 
• The nominal interest rates falls 
• The nominal interest rate does not change 
• Transaction demand for money falls 

When banks make loans between banks the interest rate is called the __________. (federal funds rate or discount rate?)

• federal funds rate

• discount rate

______ the discount rate is expansionary monetary policy. (Increasing or decreasing?)

• Increasing

• Decreasing

When banks make loans from the Federal Reserve the interest rate is called the __________. (federal funds rate or discount rate?)

• federal funds rate

• discount rate

Which policy would help fight unemployment?

• Expansionary

• Contractionary

When lowering the discount rate, inflation increases and unemployment ____________. (decreases or increases?)

• increases

• decreases

The real interest rate equals the

• nominal interest rate plus the inflation rate
• nominal interest rate minus the inflation rate
• nominal interest rate divided by the inflation rate
• nominal interest rate times the inflation rate 

Which of the following will increase the demand for loanable funds?

• a federal government budget surplus 
• an increase in perceived business opportunities
• a decrease in the interest rate 
• decreased private savings rates

Which function of money best defines $1.25 as the price of a 20 oz. bottle of soda? 

• Medium of exchange
• Unit of account 
• Store of value 
• Fiat money