AP Macro Money Market

Which of the following is true?

• The quantity of money demanded will be greater at IR2 than IR1

• The graph depicts a decrease in the money supply

• The quantity of money demanded will be greater at IR1 than IR2

• The graph depicts a leftward shift in the demand for money

Which of the following could have caused the shift seen on the graph?

• An increase in interest rates

• An increase in real income levels

• A decrease in the price level

• An increase in unemployment

Imagine that the supply of money decreased. What impact would this have on interest rates? How would this impact aggregate demand?

Show the impact that a decrease in the price level would have on the demand for money

Check all that apply: Which THREE graphs show the Money Market?

• Graph B

• Graph A

• Graph C

• Graph D

• Graph AB

During a recession, the Fed should use...

• an expansionary policy

• a contractionary policy

Check all that apply: Which THREE graphs show the Money Market?

• Graph B

• Graph A

• Graph C

• Graph D

• Graph AB

Suppose the Federal Reserve buys $400,000 worth of securities from the securities dealers on the open market. If the reserve requirement is 20% and the banks hold no excess reserves, what will happen to the total money supply?

• It will be unchanged.

• It will contract by $2,000,000.

• It will contract by $800,000.

• It will expand by $2,000,000.

• It will expand by $800,000.

Which of the following does the Federal Reserve use most often to combat a recession?

• Selling securities

• Buying securities

• Reducing the reserve requirement

• Increasing the discount rate

• Increasing the federal funds rate

To reduce inflation, the Federal Reserve could:

• expand the money supply in order to raise interest rates, which increases investment.

• expand the money supply in order to lower interest rates, which increases investment.

• contract the money supply in order to lower interest rates, which increases investment.

• contract the money supply in order to raise interest rates, which decreases investment.

• buy bonds and decrease the discount rate to encourage borrowing.