Multiple Choice Practice for The Financial Sector

Welcome to Unit 4 AP Macroeconomics Multiple Choice Questions! Grab some paper and a pencil 📄 to record your answers as you go. You can see how you did on the Unit 4 Practice Questions Answers and Review sheet once you're done. Don't worry, we have tons of resources available if you get stumped 😕 on a question. And if solo study is not your thing, join a group in Hours!

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Facts about the test: The AP Macroeconomics exam has 70 multiple choice questions and you will be given 1 hour to complete the section. That means it should take you around 8 minutes to complete 10 questions.

*The following questions were not written by College Board and, although they cover information outlined in the AP Macroeconomics Course and Exam Description, the formatting on the exam may be different.

1. Which of the following are true regarding bonds?

A. There is no opportunity cost in owning a bond.

B. All bonds earn the same amount of interest.

C. Bonds are interest-bearing assets.

D. The bond holder owns part of a company.

2. A tourist in Japan pays for food with the country's currency, the yen. The price of all purchases is determined by the number of yen needed to buy the goods. The use of Yen to express the price of a good is which function of money?

A. store of wealth

B. store of value

C. unit of account

D. means of payment

3.  Of the following assets, which is the most liquid?

A. stocks

B. currency

C. bonds

D. real estate

4. If the central bank wanted to control inflation, which of the following policies would it implement?

A. decrease government spending

B. increase investment spending

C. decrease the required reserve ratio

D. sell government bonds to the public

5. Which of the following would lead to an increase in the equilibrium real interest rate in the loanable funds market?

A. an increase in private savings

B. A decrease in foreign financial capital inflows

C. a decrease in taxable purchases

D. a decrease in the expected inflation rate

6. If bank reserves are $20 million, demand deposits are $5 million, currency in circulation is $2 million, and savings bonds are $1 million, calculate the monetary base.

A. $20 million

B. $22 million

C. $25 million

D. $28 million

7. All of the following are part of the M1 money supply except:

A. traveler's checks

B. currency in circulation

C. checkable deposits

D. bonds

8. When the loanable funds market is in equilibrium,

A. the interest rate is greater than demand

B. borrowing equals lending

C. supply equals demand

D. investment spending equals consumer spending

9. Which of the following changes will definitely occur if the nominal interest rate increases?

A. the money supply curve will shift to the right

B. the money demand curve will shift to the right

C. the money supply curve will shift to the left

D. the money demand curve will shift to the left

10. When a bank received a deposit $10,000 and holds $2,000 in required reserves, the required reserve ratio must be

A. 0.2

B. 5%

C. 10%

D. 15%

11. The required reserve ratio expressesses the relationship between a bank's required reserves and its

A. owner's equity

B. loans

C. government securities

D. demand deposits

12. The U.S. Federal Reserve can change the U.S. money supply by changing the

A. amount of gold in circulation

B. discount rate

C. supply of private loans

D. price level

13. If a bank borrows money from another bank, it would pay which of the following?

A. The federal funds rate

B. the discount rate

C. the equilibrium rate

D. the level rate

14. A commercial bank is able to create money because of our

A. gold standard

B. equilibrium interest rate

C. invisible hand system

D. fractional reserve banking system

15. If an economy is experiencing a recession and the central bank wants to reduce unemployment by increasing investment, the central bank could

A. sell government securities

B. print more money

C. decrease the gold standard

D. buy government securities

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