FREE ECONOMICS AND STUDY GAMES ABOUT AP MACRO

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FREE ECONOMICS AND STUDY GAMES ABOUT AP MACRO

UNIT 4 EXAM QUESTIONS

Actual Qs and Ans Expert-Verified Explanation

This Exam contains:

-Guarantee passing score -58 Questions and Answers -format set of multiple-choice -Expert-Verified Explanation

Question 1: Barter

Answer:

trading of goods and service for other goods and services

Question 2: Federal Deposit Insurance Corporation (FDIC)

Answer:

insures deposits in National Commercial Banks (due to the financial crisis of 2008 the amount insured was raised to $250,000)

Question 3: Administrative Rates

Answer:

interest rates under the control of the FED

Question 4: Liabilities

Answer:

items owed by a bank (financial responsibilities) Examples: loans the bank has taken out and deposits held by the bank. (Often when banks invest they borrow money to do this)

Question 5: Reserve Requirement (Reserve Ratio)

Answer:

percentage of deposits banks must keep "on hand"; because the US has ample reserves does not currently have a reserve requirement; most likely in the context of countries that have limited reserves

Question 6: Monetarism

Answer:

belief that the best way to gradually grow the economy in the long-run is through slow steady growth in the money supply

Question 7: Demand Deposit Multiplier

Answer:

the multiplier is the same (1/R) and that number is multiplied by the amount of the original change in demand deposits (money deposited in the bank or money that is withdrawn from a checking account)

Question 8: Money Multiplier

Answer:

1/reserve requirement

Question 9: Demand Deposits

Answer:

aka transaction deposits; checking and simple savings accounts that are counted in M1

Question 10: Money Multiplier Effect

Answer:

when an increase or decrease initially occurs in the money supply, the overall effect of that change (on the money supply) will be greater than the immediate/initial change in the money supply

Question 11: Reserve Interest Rate

Answer:

the interest rates the FED pays on reserves (savings rate for banks)

Question 12: Gold Standard

Answer:

money's value is stated in terms of a certain amount of gold (money can also be exchanged for gold)

Question 13: Depreciation

Answer:

refers to the value of a nation's currency decreasing

Question 14: Monetary Policy

Answer:

policies used by Central Banks (in the US it's the FED) to control interest rates

Question 15: Crowding In Effect

Answer:

lower deficits reduce government borrowing and the demand for loanable funds, lowers real interest rates, good for the long run health of the economy

Question 16: Money Market

Answer:

illustrates the Quantity of Money and Nominal Interest rates; Money Supply is illustrated as a vertical line

Question 17: Open Market Operations

Answer:

refers to central banks either buying or selling government securities, these transactions are done with banks (this is no longer used by the US to affect interest rates)

Question 18: Loanable Funds Market

Answer:

Quantity of Loanable Funds and Real Interest Rates; Supply of Loanable funds is typical upward sloping line.

Question 19: Regional Depositories

Answer:

maintains currency, check clearing, banks for member banks

Question 20: Quantity Theory of Money

Answer:

the monetarist belief that in the long run velocity of money is constant (is the idea that as the money supply increases the value of money goes down)

Question 21: Near Money

Answer:

paper assets/investments/accounts (such as stocks and bonds) that can be converted into cash

Question 22: Appreciation

Answer:

refers to the value of a nation's currency increasing

Question 23: Inconvertible Fiat Standard

Answer:

money cannot be exchanges for gold/silver (value in this type of monetary standard is determined by exchange rates

Question 24: Policy Rate

Answer:

this is an overnight bank to bank interest rate; in the US this is called the Federal Funds rates; in economies with limited reserves this is the interest rate that is most affected by changes in the money supply

Question 25: Equation of Exchange

Answer:

M(money supply) x V(velocity) = nominal GDP

Question 26: Federal Saving and Loan Insurance Corporation (FSLIC)

Answer:

insures deposits at Savings and Loan Associations

Question 27: Excessive Reserves

Answer:

the money available for banks to lend and invest; US Banks are holding increasing amounts of excess reserves than they did previously

Question 28: Unit of Accounting

Answer:

aka standard of value; can be used to compare the value of goods and services