Test Booklet
Unit 4 Retake
1.
The graph above shows two aggregate demand curves, AD1 and AD2, and an aggregate supply curve, AS. The shift
in the aggregate demand curve from AD1 to AD2 could be caused by
(A) a decrease in taxes
(B) a decrease in the money supply
(C) an increase in government spending
(D) an increase in consumption spending
(E) an increase in the price level
2. 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
(A) $500
(B) $1,000
(C) $2,000
(D) $4,000
(E) $4,500
3. Banks create money when
(A) they make loans
(B) the loans they make are repaid
(C) they keep all excess reserves
(D) customers increase their cash withdrawals from their savings accounts
(E) the money multiplier is less than one
AP Macroeconomics Page 1 of 6
Test Booklet
Unit 4 Retake
4. Banks expand the money supply when
(A) issuing credit cards
(B) printing money
(C) cashing checks
(D) making loans
(E) accepting deposits
5. If businesses become optimistic about the profitability of investments in an economy, which of the following will
happen in the loanable funds market in the short run?
(A) The supply and demand for loanable funds will increase.
(B) The supply and demand for loanable funds will decrease.
(C) The demand for loanable funds by the private sector will decrease.
(D) The real interest rate will increase.
(E) The real interest rate will decrease.
6. For a country whose banking system has limited reserves, an open-market operation by the country’s central bank to
reduce the unemployment rate would be to
(A) sell bonds to decrease the interest rate and to increase aggregate demand
(B) sell bonds to increase the interest rate and to decrease aggregate demand
(C) sell bonds to increase the interest rate and to increase investment
(D) buy bonds to decrease the interest rate and to decrease aggregate demand
(E) buy bonds to decrease the interest rate and to increase aggregate demand
7. If the expected inflation rate is 6%, the nominal interest rate is 2%, and the actual inflation rate is 4%, what is the
actual real interest rate?
(A)
(B)
(C) 2%
(D) 4%
(E) 6%
8. 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%
Page 2 of 6 AP Macroeconomics
Test Booklet
Unit 4 Retake
9. Fred Jones withdraws andsavings account. What immediate effect does this transaction have
in cash from his
on the monetary aggregate measures of ?
(A) M1 will increase: M2 will decrease
(B) M1 will increase: M2 will not change
(C) M1 will decrease; M2 will not change
(D) M1 will not change; M2 will decrease
(E) M1 will not change ;M2 will not change
10. Assume a country’s banking system has limited reserves. Which of the following results when the central bank sells
bonds to commercial banks?
(A) The total assets held by commercial banks will eventually increase.
(B) The money supply decreases.
(C) The discount rate increases.
(D) The public increases its cash holdings.
(E) The required reserve ratio increases because of decreasing excess reserves.
11. Assume a country’s banking system has limited reserves. Which of the following policy actions will directly
increase the money supply?
(A) The central bank purchases government bonds on the open market.
(B) The central bank sells government bonds on the open market.
(C) The government increases taxes without changing its spending.
(D) The government decreases taxes without changing its spending.
(E) The government decreases taxes while simultaneously decreasing its spending.
12. Assume a country has limited reserves in its banking system. To decrease the money supply, the country’s central
bank can do which of the following?
(A) Sell government bonds
(B) Decrease the discount rate
(C) Decrease the required reserve ratio
(D) Increase taxes
(E) Increase government spending
AP Macroeconomics Page 3 of 6
Test Booklet
Unit 4 Retake
13. With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of
money will change in which of the following ways?
Interest Rate Quantity of Money
(A)
Increase Decrease
Interest Rate Quantity of Money
(B)
Increase Not change
Interest Rate Quantity of Money
(C)
Decrease Decrease
Interest Rate Quantity of Money
(D)
Decrease Increase
Interest Rate Quantity of Money
(E)
Decrease Not change
14. An increase in government spending with no change in taxes leads to a
(A) lower income level
(B) lower price level
(C) smaller money supply
(D) higher interest rate
(E) High Bond price
15. If there is an increase in nominal income, which of the following will most likely occur in the short run?
(A) The supply of money will decrease.
(B) The supply of money will increase.
(C) The demand for money will increase.
(D) The demand for money will decrease.
(E) There will be no impact on the money market.
Page 4 of 6 AP Macroeconomics
Test Booklet
Unit 4 Retake
16. In the short run, government deficit spending will most likely
(A) raise the unemployment rate
(B) lower the inflation rate
(C) raise nominal interest rates
(D) lower private savings
(E) raise net exports
17. Assume a banking system with limited reserves. During a recession, an increase in the money supply would result
in which of the following?
(A) spendingA decrease in inflationary expectations, an increase in interest rates, and a decrease in interest-
sensitive
(B) A decrease in interest rates, an increase in interest-sensitive spending, and an increase in real output
(C) A decrease in stock prices, a decrease in financial wealth, and a decrease in consumption
(D) An increase in interest rates, appreciation of the domestic currency, and a decrease in net exports (E) An
increase in stock prices, a decrease in consumer confidence, and a decrease in household spending
18. An increase in the price level will most likely cause which of the following?
(A) A leftward shift of the aggregate demand curve
(B) An increase in the demand for money
(C) An increase in the real interest rate
(D) A decrease in the nominal interest rate
(E) An increase in the supply of money
The table gives the value of selected assets and liabilities of a commercial bank’s T-account.
19. 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
AP Macroeconomics Page 5 of 6
Test Booklet
Unit 4 Retake
20. Suppose that the real interest rate is equal to seven percent and the expected inflation rate is currently three percent.
If an oil crisis in the Middle East increases the expected inflation rate to four percent, the new nominal interest rate
is equal to
(A) 3%
(B) 4%
(C) 7%
(D) 11%
(E) 14%
21. Which Federal Reserve action can shift the aggregate demand curve to the left?
(A) Lowering the federal funds rate
(B) Lowering income taxes
(C) Lowering reserve requirements
(D) Raising interest on reserves
(E) Raising government spending on national defense
Page 6 of 6 AP Macroeconomics
