AP Macro Unit 4 Financial Sector

"The price for a ticket to the Super Bowl is $500." This statement best illustrates money used as a

• Illiquid asset

• Liquid asset

• Unit of account

• Medium of exchange

• Store of value

If you use money as a store of value, you would be

• Buying a new watch

• Searching the Internet for a deal on a new car

• Putting money into a savings account

• Lending money to a friend

• Paying for gas on your credit card

Which of the following is NOT part of M1?

• Savings deposits

• Checkable deposits

• Coins

• Traveler's checks

• Currency

Which of the following will most likely occur in an economy if more money is demanded than is supplied?

• The amount of investment spending will increase.

• Interest rates will increase

• The supply of money will decrease

• Deflation

• The aggregate demand will increase

Which of the following is true for the money market graph?

• The demand for money is vertical because of autonomous spending

• The supply of money is downward sloping

• There is no relationship between the nominal interest rate and the quantity of money demanded in the long-run

• There is an inverse relationship between the nominal interest rate and the quantity of money demanded

• An increase in the nominal interest rate will shift the money supply to the right

Fractional reserve banking means that banks are required to

• Charge the same interest rate on all their loans

• Expand the money supply when requested by the central bank

• Insure their deposits against losses and bank runs

• Pay a fraction of their interest income in taxes

• Keep part of their demand deposits as reserves

Banks may not be able to create the maximum amount of money from a new deposit as a result of

• Government banking regulation

• Increased demand for investment

• Decrease in the required reserve ratio

• The banks can only make a set number of loans

• Individuals holding a larger portion of their assets as cash

When an economy is at full employment, an expansionary monetary policy will lead to

• Lower interest rates and more investment

• Lower interest rates and less investment

• Higher interest rates and lower prices

• Higher interest rates and higher prices

• Higher interest rates and lower price levels

If the Federal Reserve raises the discount rate, how are interest rates and real GDP affected?

• Interest Rates / Real GDP

  Decrease / Decrease

• Interest Rates / Real GDP

   Increase / Increase

• Interest Rates / Real GDP

  Decrease / Increase

• Interest Rates / Real GDP

  Increase / Decrease

• Interest Rates / Real GDP

  Decrease / No change

To eliminate an inflationary gap, the Federal Reserve might

• Increase personal income taxes

• Increase in the money supply

• Decrease the federal funds rate

• Buy bonds on the open market

• Sell bonds on the open market