AP Macro Unit 4.1-4.4 Quiz Review

Which of the following is true for bonds but not for stocks?

• Bonds are the least liquid form of assets.

• Bonds represent partial ownership in a company.

• Bonds earn variable rates of return.

• Bonds are interest-bearing assets.

• Bonds have zero opportunity cost

Which of the following is considered the most liquid asset?

• Stocks

• Bonds

• Currency

• Real estate

• Commodities

If the interest rate on loans before adjusting for inflation is 9%, and the expected inflation rate is 4%, then which of the following must be true?

• Lenders are expected to receive an additional 4% on their loaned funds.

• Borrowers are expected to pay an additional 4% on their borrowed funds.

• The expected real interest rate is 9%.

• The expected real interest rate is 13%.

• The nominal interest rate is 9%.

Sam pays monthly installments on a five-year fixed interest rate auto loan. If the expected inflation rate increases, which of the following will happen?

• Sam will pay a lower nominal interest rate.

• Sam will pay a higher nominal interest rate.

• Sam will pay a lower real interest rate.

• Sam will pay a higher real interest rate

• Sam will pay higher monthly installments

Which of the following best describes the nominal interest rate on a mortgage loan that a bank offers to a customer?

• It is the real interest rate divided by the price level.

• It is the real interest rate minus the expected inflation rate.

• It is the interest rate charged by the bank.

• It is the interest rate charged by the bank minus the expected inflation rate.

• It is the interest rate charged by the bank minus the interest rate the bank pays to its depositors.

Based on the table above, what is the value of , a measure of the money supply?

• $100 million

• $102 million

• $112 million

• $1,000 million

• $1,120 million

Based on the table above, what is the monetary base?

• $100 million

• $102 million

• $110 million

• $112 million

• $1,112 million

ABC Bank is a commercial bank in Country X. Assume the required reserve ratio is 25% and banks in Country X keep no excess reserves. If Maria deposits in cash at Bank ABC, what will happen to the money supply after all adjustments are made in the banking system?

• The money supply will increase by a maximum of $250

• The money supply will increase by a maximum of $750

• The money supply will increase by a maximum of $1,000

• The money supply will increase by a maximum of $3,000

• The money supply will increase by a maximum of $4,000

What is the maximum amount of new loans the bank could lend with the given amounts of reserves?

• $10,000

• $20,000

• $30,000

• $50,000

• $70,000

What is the money multiplier?

• 1

• 2

• 4

• 5

• 20