AP Macroeconomics Unit 4 Test

The M1 definition of money includes which of the following?

Currency & Demand deposits (checkable deposits)

If the legal reserve requirement is 25 percent,the value of the simple deposit expansion multiplier is

4

When money is used as a standard of value,a person is

making price comparisons among products.

Which of the following are true statements about the federal funds rate?

It is the interest rate that banks charge each
other for short-term loans.

It is influenced by open market operations.

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

It will expand by $2,000,000.

The money market is definitely in equilibrium in which of the following cases?

When the quantity of money demanded equals the quantity of money supplied

A commercial bank holds $500,000 in demand deposit liabilities and $120,000 in reserves. If the required reserve ratio is 20 percent, which of the following is the maximum amount by which thissinglecommercialbankandthemaximum amount by which the banking system can increase loans?

Single Bank= $20,000
Banking System= $100,000

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

Buying securities

To reduce inflation, the Federal Reserve could

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

Reserves, the money supply and interest rates are most likely to change in which of the following ways when the federal reserve sells bonds.

Reserves: Decrease
Money Supply: Decrease
Interest Rates: Increase

Which of the following actions by the Federal Reserve will result in an increase in banks' excess reserves?

Buying bonds on the open market

Aggregate demand and aggregate supply analy- sis suggests that, in the short run, an expansionary monetary policy will result in

an increase in real GDP without much inflation when the economy is on the hori- zontal portion of the aggregate supply curve.

Which of the following combinations of mon- etary policy actions would definitely cause a decrease in aggregate demand?

Discount Rate: Increase
Open Market Operations: Sell bonds
Reserve Requirement: Increase

Which of the following is most likely to increase the velocity of money?

Higher frequency of paychecks

Which of the following characteristics of money could be found in bars of gold?

Uniformity and durability

The real interest rate is simply stated as the

nominal interest rate minus the expected inflationrate.

Vault cash and reserve accounts are similar in that each

earns no interest.

The neutrality of money refers to the situation where

increases in the money supply eventually result in no change in real output.

Expansionary monetary policy results in which of the following in the short run?

I. The money supply increases.
II. Thenominalinterestratedecreases.
III. The real interest rate decreases.

True statements about expansionary monetary policy in the long run include which of the following?

I. Price level increases to match the increase
in the money supply.
II. Thenominalinterestrateequalsthereal
interest rate plus the expected inflation
rate.
III. The real output level has not permanently
increased.