AP Macro Unit 4 Review with ample reserves

Front

If the expected inflation rate increases, what will happen to Sam's payments on a five-year fixed interest rate auto loan?

Back

Sam will pay a lower real interest rate.

Front

Which of the following changes in the loanable funds market will decrease the equilibrium real interest rate: An increase in foreign financial capital inflows, An increase in government spending on highways financed by borrowing, An investment tax credit for plant and equipment, A decrease in private savings?

Back

An increase in foreign financial capital inflows

Front

Which of the following will happen when interest rates increase in an economy? The opportunity cost of holding money will increase. Investment spending will increase. The spending multiplier will decrease. The cost of borrowing will decrease.

Back

The opportunity cost of holding money will increase.

Front

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? The expected real interest rate is 13%, The expected real interest rate is 9%. The nominal interest rate is 9%. Lenders are expected to receive an additional 4% on their loaned funds.

Back

The nominal interest rate is 9%.

Front

Which of the following is a monetary policy action a central bank with limited reserves would implement to control inflation?
Lower the required reserve ratio,
Lower the discount rate,
Target a lower overnight interbank lending rate,
Sell government bonds to the public

Back

Sell government bonds to the public

Front

Which of the following will happen if the central bank of a nation purchases government bonds on the open market? Options: The monetary base will increase and the money supply will not change. The monetary base will increase and the money supply will increase. The monetary base will decrease and the money supply will increase. The monetary base will decrease and the money supply will not change.

Back

The monetary base will increase and the money supply will increase.

Front

Which of the following is considered the most liquid asset? Currency, Real estate, Bonds, Stocks

Back

Currency

Front

The use of favolis to express the price of goods is ...

Back

Unit of account

Front

ABC Bank is a commercial bank in Country X. Assume the required reserve ratio is 25%. If ABC Bank sells $20 million worth of government bonds to Country X’s central bank, what will happen to the money supply?

Back

The money supply will decrease by a maximum of $80 million.

Front

Which of the following will most likely result in a lower real interest rate in a nation? Options: The nation provides an investment tax credit to new businesses. The nation’s central bank sells government bonds in the open market. The nation is experiencing political instability and economic risk. The citizens of the nation increase their savings for retirement.

Back

The citizens of the nation increase their savings for retirement.