AP Macroeconomics Unit 4: Financial Sector Practice Exam

1. Which of the following correctly ranks these assets from most liquid to least liquid?

2. Suppose the market interest rate for newly issued bonds similar to Asset Y increases significantly. What will be the immediate impact on the price of the pre-existing Asset Y?

3. If the nominal interest rate on a loan is 7% and the expected inflation rate is 3%, what is the expected real interest rate?

4. Suppose lenders and borrowers agree on a nominal interest rate for a loan based on an expected inflation rate of 2%. If the actual inflation rate turns out to be 4%, which of the following is true?

5. According to the Fisher effect, if the central bank's policies lead to a higher expected rate of inflation, what will happen to the nominal interest rate and the real interest rate?

6. Which of the following is included in the M1 measure of the money supply but not in M2?

7. When you use dollars to post the price of a meal on a restaurant menu, money is serving which function?

8. Based on the balance sheet, what is the required reserve ratio?

9. What is the maximum amount of new loans that First National Bank can currently make?

10. Assume that First National Bank lends out its entire excess reserves to a customer, who then deposits the full amount into a checking account at Second National Bank. What is the maximum possible change in the money supply resulting from this single transaction at First National Bank?

11. If the required reserve ratio is 20% and a customer deposits 100 dollars of cash into their checking account, what is the maximum possible increase in the total money supply for the entire banking system?

12. The value of the simple money multiplier can be overstated because it does not account for

13. In the money market graph shown, what would cause a movement from a higher interest rate down to the equilibrium interest rate i_E?

14. Which of the following would cause the demand curve for money to shift to the right?

15. To combat high inflation, a country's central bank decides to sell government bonds on the open market. What is the effect of this action on the money supply and the nominal interest rate?

16. An economy is experiencing a severe recession. Which of the following represents an appropriate monetary policy action and its intended effect?

17. The central bank's most frequently used tool for conducting monetary policy is

18. Which of the following best describes the concept of "crowding out" in the loanable funds market?

19. In the loanable funds market shown, which of the following would cause the demand curve to shift to the right?

20. The supply curve for loanable funds is upward sloping primarily because