ap econ unit 4

1. In a recession with an ample reserves banking system, which policy would the Federal Reserve most likely take?

B. Decreasing Interest on Reserve Balances from 2.0 to 1.5%

2. Ebert's Bank has required reserves $5,000, excess reserves $3,000, outstanding loans $92,000, and demand deposits $100,000. How many new loans can Ebert's Bank make today?

D. $3,000

3. Ebert's Bank has required reserves $5,000 and demand deposits $100,000. What is the reserve ratio?

D. .05

4. If your credit score is low, which action would help increase it?

D. Pay back a personal loan on time

5. The Fed sells $200,000 of securities to banks on the open market. The reserve requirement is 10% and banks hold no excess reserves. What happens to the total money supply?

C. It will decrease by $2,000,000

6. Which does the M2 definition of money include: I. Currency, II. Demand deposits (checkable deposits), III. Some money market funds and small time deposits?

C. I, II, and III

7. What happens to the price of previously issued bonds if nominal interest rates fall?

A. Bond prices would rise

8. Which would likely increase the demand for money: an increase in price level, a decrease in asset demand, a decrease in transactions demand, or a decrease in the money supply?

A. An increase in Price Level

9. Which is true in the loanable funds market?

B. The supply of loanable funds shows a direct (positive) relationship between real interest rates and quantity of LF supplied

(10.) Which is the least liquid asset: currency, T-bills and government bonds, stocks, or certificates of deposit?

C. Stocks

11. A money market graph shows the money supply shifting LEFT. Which policy would cause this: Fed buying bonds, Fed decreasing discount rates, Fed raising the reserve requirement, or government raising taxes?

C. Federal Reserve raising the reserve requirement

12. The Fed raises the reserve requirement (money supply shifts left). What is the impact on real GDP and the price level?

D. Real GDP: Decrease, PL: Decrease

13. A loanable funds graph shows SUPPLY shifting right and the real interest rate falling from 5% to 4%. What would cause this shift?

A. An increase in public savings

15. Which accurately describes expansionary monetary policy in the ample reserves system?

D. The Fed lowers interest on reserves to lower the federal funds rate

16. What is the primary factor that determines your credit score?

C. Your payment history

17. Which accurately describes expansionary monetary policy in limited reserves?

B. The central bank lowers the discount rate, banks become more willing to lend reserves, lowering interest rates, and increasing investment spending

B7. What happens to the price of previously issued bonds if nominal interest rates rise?

B. Bond Prices would fall

12. Which of the following is NOT an example of contractionary monetary policy: raising the discount rate, lowering the reserve requirement, raising the federal funds rate, or selling bonds on the open market?

B. Lowering the Reserve Requirement

13. Ebert's Bank has required reserves $10,000, excess reserves $1,000, outstanding loans $89,000, and customer deposits $100,000. How much money can Ebert's Bank loan out today if they receive an additional $1,000 deposit?

D. 1,900

BWhich of the following policies would be unlikely to be effective in controlling inflation: raising the discount rate, buying bonds, increasing the federal funds rate, or increasing the interest on reserve balances?

B. Buying Bonds