AP MACROECONOMICS Test Booklet
Unit 4 HW 2
1. The table below shows monetary assets for a banking sector at the end of a year.
Monetary Assets Value (in millions)
Monetary Base
Currency in Circulation
M1
Based on the data provided, what is the value of total reserves held by depository institutions?
(A) million
(B) million
a
(C)
(D)
million
million
(E) million
2. Fred Jones withdraws in cash from his savings account. What immediate effect does this transaction have
on the monetary aggregate measures of and ?
(A) will increase; will decrease
(B) will increase; will not change
(C) will decrease; will not change
(D) will not change; will decrease
(E) will not change; will not change
3. On the island of Mabera, the local money is called “favoli.” The price of every good in Mabera is expressed as the
number of favolis needed to buy the good. The use of favolis to express the price of goods describes which function
of money?
(A) Store of value
(B) Medium of exchange
(C) Means of payment
(D) Unit of account
(E) Store of wealth
AP Macroeconomics Page 1 of 10
Test Booklet
Unit 4 HW 2
The table below gives the value of various monetary measures, in millions of dollars.
Cash in Circulation
Certificates of Deposit
Bank Reserves
Demand Deposits
Savings Deposits
4.
7, a measure of the money supply?
Based on the table above, what is the value of
(A)
(B)
(C)
(D)
(E)
5. Which of the following is NOT a function of fiat money?
(A) A standard of deferred payment
(B) A unit of account
(C) A source of intrinsic value
(D) A store of value
(E) A medium of exchange
6. Pat deposits a portion of her wages into a personal savings account every week. The saved money can be considered
to be primarily a
(A) means of payment
(B) unit of account
a
(C) store of value
(D) measure of value
(E) medium of exchange
7. The real value of the United States dollar is determined by
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Test Booklet
Unit 4 HW 2
(A) federal regulations regarding purchasing power
(B) the value of the gold backing the dollar
(C) the goods and services it will buy
(D) the money multiplier
(E) the marginal propensity to consume
,
8. The transaction demand for money is very closely associated with money’s use as a
(A) store of value
(B) standard unit of account
(C) measure of value
(D) medium of exchange
(E) standard of deferred payment
9. Which of the following most undermines the ability of a nation’s currency to store value?
(A) A decrease in the purchasing power of the currency
(B) The use of credit and debit cards as mediums of exchange
(C) An increase in the prices of federal bonds
(D) Appreciation of the currency in the international money market
(E) An increase in the supply of foreign currencies in the international money market
10. Assume that 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
(A) $2,000
(B) $8,000
(C) $10,000
(D) $20,000
(E) $50,000
11. 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 [Link] meet the reserve requirement, the bank
must increase its reserves by
(A) $500
(B) $1,000
(C) $2,000
(D) $4,000
9
(E) $4,500
AP Macroeconomics Page 3 of 10
Test Booklet
Unit 4 HW 2
12.
A commercial bank is facing the conditions given above. If the reserve requirement is 12 percent and the bank does
not sell any of its securities, the maximum amount of additional lending this bank can undertake is
(A) $15,000
(B) $12,000
(C) $3,000
(D) $1,800
(E) 0
13.
Based on the balance sheets above for three different banks, which of the following is true, if the reserve
requirement is 10 percent?
(A) Bank A has no excess reserves.
(B) Bank B has no excess reserves.
(C) Bank B can increase its loans by $500.
(D) Bank B can increase its loans by $40.
(E) Bank C has excess reserves.
14. Commercial banks can create money by
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Test Booklet
Unit 4 HW 2
(A) transferring depositors' accounts at the Federal Reserve for conversion to cash
(B) buying Treasury bills from the Federal Reserve
(C) sending vault cash to the Federal Reserve
(D) maintaining a 100 percent reserve requirement
(E) lending excess reserves to customers
15. Banks expand the money supply when
(A) issuing credit cards
(B) printing money
…
(C) cashing checks
9(D) making loans
(E) accepting deposits
16. Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The
legal reserve requirement is 10 percent. If Maggie deposits the $100 bill she received as a graduation gift from her
grandmother into her checking account, the maximum increase in the total money supply will be
(A) $10
(B) $100
(C) $900
(D) $1,000
(E) $1,100
17. Bank is a commercial bank in Country . Assume the required reserve ratio is and banks in Country
keep no excess reserves. If Maria deposits in cash at Bank, what will happen to the money supply
after all adjustments are made in the banking system?
(A) The money supply will increase by a maximum of .
(B) The money supply will increase by a maximum of .
(C) The money supply will increase by a maximum of .
(D) The money supply will increase by a maximum of .
(E) The money supply will increase by a maximum of .
18. A bank has $800 million in demand deposits and $100 million in reserves. If the reserve requirement is 10 percent,
the bank’s excess reserves equal
(A) $10 million
&
(B) $20 million
(C) $80 million
(D) $100 million
(E) $200 million
AP Macroeconomics Page 5 of 10
Test Booklet
Unit 4 HW 2
19. Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and borrowers deposit all loans
made by banks. Suppose you have saved $100 in cash at home and decide to deposit it in your checking account. As
a result of your deposit, the money supply can increase by a maximum of
(A) $800
9
(B) $900
(C) $1,000
(D) $1,100
(E) $1,200
20. If on receiving a checking deposit of $300 a bank's excess reserves increased by $255, the required reserve ratio
must be
(A) 5%
(B) 15%
(C) 25%
(D) 35%
(E) 45%
21.
The table above shows the current entries in the T-account of Bank. Kim purchases a bond issued by the
central bank for $50,000 and pays for the bond by drawing on her company’s account at Bank. What is the
effect of Kim’s purchase of the bond on the required and excess reserves of Bank and the total money
supply?
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Test Booklet
Unit 4 HW 2
Required Excess Money Supply
(A)
Increase Decrease Decrease
Required Excess Money Supply
(B)
Decrease Decrease Decrease
Required Excess Money Supply
(C)
No change Decrease No change
Required Excess Money Supply
(D)
Increase No change Increase
Required Excess Money Supply
(E)
Decrease Increase Increase
22. Which of the following would be included as a liability on a commercial bank’s balance sheet?
(A) Consumer loans
(B) Demand deposits
(C) Net worth
(D) Bank reserves
(E) Treasury bonds
AP Macroeconomics Page 7 of 10
Test Booklet
Unit 4 HW 2
The table gives the value of selected assets and liabilities of a commercial bank’s T-account.
23. What is the maximum amount of new loans the bank could lend with the given amounts of reserves?
(A) $10,000
(B) $20,000
(C) $30,000
(D) $50,000
(E) $70,000
24. What is the money multiplier?
(A) 1
(B) 2
(C) 4
(D) 5
0
(E) 20
25. Which of the following is a defining characteristic of a fractional reserve banking system?
(A) The existence of a central bank with a monopoly on money creation
(B) The use of paper money backed by a commodity such as gold or silver
The fact that banks retain an amount of bank reserves that is less than the amount of customer demand
(C)
deposits
The requirement that banks maintain a certain percentage of their reserves as a deposit in an account at the
(D)
central bank
(E) The regulations that separate investment banking from commercial banking
26. Assume that the reserve requirement is 15 percent and that a bank receives a new checking deposit of $200. Which
of the following will most likely occur in the bank's balance sheet?
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Test Booklet
Unit 4 HW 2
Liabilities: Increase by $200
(A)
Required Reserves: Increase by $170
Liabilities: Increase by $200
9(B)
Required Reserves: Increase by $30
Liabilities: Increase by $200
(C)
Required Reserves: Not change
Liabilities: Decrease by $200
(D)
Required Reserves: Decrease by $30
Liabilities: Decrease by $200
(E)
Required Reserves: Decrease by $170
27. The money-creating ability of the banking system will be less than the maximum amount indicated by the money
multiplier when
(A) interest rates are high
(B) the velocity of money is rising
(C) people hold a portion of their money in the form of currency
(D) the unemployment rate is low
(E) the government's budget is in deficit
28. If the required reserve ratio is 0.2, a $1 billion increase in bank reserves can lead to an increase in M1 of at most
(A) $6 billion
(B) $5 billion
(C) $1 billion
(D) $0.8 billion
(E) $0.2 billion
29. Assume that banks hold no excess reserves. A decrease in the required reserve ratio will cause total reserves in
banks, the money multiplier, and the money supply to change in which of the following ways?
AP Macroeconomics Page 9 of 10
Test Booklet
Unit 4 HW 2
Total Reserves Money Multiplier Money Supply
(A)
Increase Increase Increase
Total Reserves Money Multiplier Money Supply
(B)
Increase No change Increase
Total Reserves Money Multiplier Money Supply
(C)
No change Increase Decrease
Total Reserves Money Multiplier Money Supply
(D)
Decrease Decrease Decrease
Total Reserves Money Multiplier Money Supply
(E)
No change Increase Increase
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