Which of the following accurately describes the primary cause of the 2008 US financial crisis?

Defaults on home mortgages caused by banks lending practices

The purchasing power of the dollar:

is inversely related to the price level

Which of the following will cause the aggregate demand curve to shift to the left?

Fed sales of bonds to the public

If the current interest rate is below the equilibrium rate:

the interest % rises & quantity of money demanded decreases

The monetary multiplier is equal to:

the inverse of the required reserve ratio

Two primary assets of the Federal Reserve Banks are:

securities and loans to commercial banks

In the U.S., there are:

12 Fed Districts corresponding to 12 Fed Reserve Banks

If the Fed buys bonds from the public through its open market operations:

bond prices increase & interest rates will decrease

A bank has no ER with a RR of 20%. The RR is then dropped to 10%. As a result of this reduction

the money supply will likely increase

Banks are meeting their RR of 25% & da Fed sells $30B in securities to banks. The purpose is to

reduce the potential money supply by $120 billion

Other things equal, a dramatic decrease in the money supply would

increase the purchasing power of each dollar

Which of the following is included in M2 but not M1?

Small-denominated time deposits (less than $100,000)

Sam draws a $100 on his account at Bank A which is deposited in Bank B. When check is cleared:

Bank A loses reserves and deposits equal to $100

You write a $50k check on your account at a Bank to repay the balance on a loan. The result is:

the money supply declines by $50,000

A decrease in the money supply will:

raise interest rates, reducing planned investment and GDP

If the intent of the Fed is to increase GDP, it should:

purchase government securities in the open market

The U.S. money supply is "backed" by:

the ability of the government to maintain its value

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AP Macroeconomics - Unit 3

28 termsStudBud Administration455 plays

Monetary Policy

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Questions 28

Answers

1
Which of the following accurately describes the primary cause of the 2008 US financial crisis?
A sharp reduction in the money supply by the Federal Reserve
A rapid increase in the size of the federal deficit
The rapid collapse in the stock market
Defaults on home mortgages caused by banks lending practices
2
The purchasing power of the dollar:
is inversely related to the price level
is directly related to the supply of money
increases with the rate of inflation
is directly related to the price level
3
Interest rate is 6% & the Fed thinks that Investment of $40 is required. The Fed will:
lower the discount rate
raise the rate the Fed pays banks on reserves
sell bonds to the public
raise the reserve requirement
4
Which of the following will cause the aggregate demand curve to shift to the left?
an expansionary monetary policy
Fed sales of bonds to the public
a reduction in the reserve requirement
a reduction in interest rates
5
If the current interest rate is below the equilibrium rate:
the money supply will increase & the interest rate will rise
the interest % rises & quantity of money demanded decreases
the money supply exceeds the quantity of money demanded
the money supply will decrease & the interest rate will rise
6
The monetary multiplier is equal to:
one
the inverse of actual reserves minus required reserves
the inverse of the required reserve ratio
the inverse of one minus the required reserve ratio
7
Every time you curse, money goes into a jar. The primary function served by money in the jar is
Medium of Exchange
Standard of value
Store of value
Unit of account
8
Two primary assets of the Federal Reserve Banks are:
securities and Federal Reserve Notes outstanding
securities and loans to commercial banks
securities and Treasury deposits
Federal Reserve Notes outstanding and reserves of banks
9
In the U.S., there are:
50 Federal Reserve Districts corresponding to the 50 states
12 Fed Districts corresponding to 12 Fed Reserve Banks
7 Districts corresponding to 7 members of the Board of Gov
6 Fed Reserve Banks corresponding to the 6 U.S. time zones
10
Money is created when:
banks trade state bonds in their portfolio for federal bonds
the net worth of the banking system is increased
loans are repaid
banks make additional loans
11
The RR is 10% and banks have no ER. If $20B is deposited, these deposits will create ER of:
$2 billion
$20 billion
$18 billion
$200 billion
12
If the Fed buys bonds from the public through its open market operations:
bond prices increase & interest rates will decrease
bond prices decrease & interest rates will increase
both the bond prices & interest rates will increase
both the bond prices & interest rates will decrease
13
A bank has deposits of $1M & RR is 5%. If a bank has ER of $5,000, then its actual reserves are
$50,000
$55,000
$5,000
$45,000
14
The demand for money falls. To maintain interest % at their previous level, the Fed might:
sell government securities
lower the reserve requirement
sell additional reserves through the Term Auction Facility
lower the discount rate
15
A bank has no ER with a RR of 20%. The RR is then dropped to 10%. As a result of this reduction
bank profitability will likely decrease
banks will add reserves by reducing their lending
the money supply will likely increase
the money multiplier will decrease
16
The group responsible for setting policy on buying and selling government securities is the:
Federal Open Market Committee
US Treasury Board
Securities & Exchange Commission
12 Federal Reserve Bank presidents
17
A single bank can safely increase its total loans by an amount equal to its:
Required reserves
Total deposits
Total reserves
Excess reserves
18
You deposit $50k in a bank that keeps 20% as RR. The deposit increases the lending capacity by:
$5,000
$50,000
$10,000
$40,000
19
A bank temporarily short of required reserves may remedy the situation by borrowing reserves:
in the Federal deposit market
in the bond market
in the Federal funds market
from its own depositors
20
Banks are meeting their RR of 25% & da Fed sells $30B in securities to banks. The purpose is to
reduce excess reserves by $7.5 billion
increase excess reserves by $30 billion
reduce the potential money supply by $90 billion
reduce the potential money supply by $120 billion
21
Other things equal, a dramatic decrease in the money supply would
increase the purchasing power of each dollar
increase the price level
have an ambiguous impact on the purchasing power of each $$$
reduce the purchasing power of each dollar
22
Which of the following is included in M2 but not M1?
Small-denominated time deposits (less than $100,000)
Currency held by banks
Government bonds
Credit card balances
23
Sam draws a $100 on his account at Bank A which is deposited in Bank B. When check is cleared:
Bank B loses reserves and deposits equal to $100
neither Bank A nor Bank B deposits or reserves are affected
Bank A gains reserves of $100 & Bank B gain deposits of $100
Bank A loses reserves and deposits equal to $100
24
You write a $50k check on your account at a Bank to repay the balance on a loan. The result is:
the bank's excess reserves will decrease by $50,000
the money supply declines by $50,000
the bank's required reserves will increase by $50,000
the money supply increases by $50,000
25
A decrease in the money supply will:
raise interest rates, reducing planned investment and GDP
raise interest %, increase investment and lowering GDP
reduce interest rates, reducing planned investment and GDP
reduce interest rates, increasing planned investment and GDP
26
If the intent of the Fed is to increase GDP, it should:
raise the reserve requirement
ask banks to reduce their amount of loans outstanding
raise the discount rate
purchase government securities in the open market
27
Writing a check to purchase a new computer is an example of using money primarily as a:
store of value
standard of value
unit of account
medium of exchange
28
The U.S. money supply is "backed" by:
silver
gold
the ability of the government to maintain its value
a joint committee of the FDIC and the NECU

AP Macroeconomics - Unit 3 Flashcards | StudBud