AP Macro Econ Unit 4

Assume the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is

• 2,000

• 8,000

• 10,000

• 20,000

• 50,000

Assume that Atlantic National Bank has demand deposits of $100,000 and no excess reserves, and that the reserve requirement is 10 percent. A customer withdraws $5,000 from the bank. To meet the reserve requirement, the bank must increase its reserves by

• 500

• 1,000

• 2,000

• 4,000

• 4,500

Commercial Banks can create money by

• transferring depositors accounts at the Federal Reserve for conversion to cash

• buying Treasury bills from the Federal Reserve

• sending vault cash to the Federal Reserve

• Maintaining a 100 percent reserve requirement

• lending excess reserves to customers

If the required reserve ratio is 10 percent, actual reserves are $10 million and currency in circulation is equal to $20 million, M1 will at most be equal to

• 20 million

• 30 million

• 90 million

• 120 million

• 150 million

The annual inflation rate is expected to be 5 percent over the next 3 years. Juan plans to take out a 3-year loan to purchase an automobile. If Juan decides not to take out the loan if the real interest rate exceeds 3 percent, the highest nominal interest rate he is willing to pay is

• 2%

• 3%

• 8%

• 15%

• 25%

If the central bank buys government bonds from individuals on the open market and banks do not loan out any excess reserves created by the open market purchase, which of the following will happen?

• The money supply will increase

• The money supply will remain unchanged

• Loans to the private sector will increase

• Demand deposits will decrease

• The level of actual reserves will decrease

All of the following changes will shift the investment demand curve to the right EXCEPT

• a decrease in the corporate income tax rate

• an increase in the productivity of new capital goods

• an increase in the real interest rate

• an increase in corporate profits

• an increase in real gross domestic product

One way in which the Federal Reserve works to change the United States money supply is by changing the

• Number of banks in operation

• velocity of money

• price level

• prime rate

• discount rate

To reduce inflation, the central bank would be most likely to

• decrease the reserve requirment

• decrease the income tax rates

• increase the money supply

• buy government securities

• sell government securities

When the Federal Reserve buys government securities on the open market, which of the following will decrease in the short run?

• interest rates

• Taxes

• Investment

• The amount of money loaned by banks

• The money supply