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ap econ uint 4 problem set

The document is an AP Macroeconomics Problem Set focused on Money, Banking, and Monetary Policy, consisting of three main sections with specific tasks and questions. It covers definitions and examples related to financial assets, central bank tools, and includes practice free response questions. The total score for the problem set is 103 points, with detailed instructions for each section.

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12 views

ap econ uint 4 problem set

The document is an AP Macroeconomics Problem Set focused on Money, Banking, and Monetary Policy, consisting of three main sections with specific tasks and questions. It covers definitions and examples related to financial assets, central bank tools, and includes practice free response questions. The total score for the problem set is 103 points, with detailed instructions for each section.

Uploaded by

studyhutfiles
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

1.

____/60
2. ____/25 Name: _______________________
3. ____/18

Total: ______/103

AP Macroeconomics Problem Set #4


Money, Banking and Monetary Policy

1. ( ____/60) Money, Banking and Financial Markets

Define (WITH CITATIONS) and give specific examples of each of the following:

a. Definition of financial assets: money, stock and bonds ( ____/15)

b. Time Value of Money (present and future value). ( ____/10)

c. Measures of Money Supply. ( ____/5)

d. How banks create money. ( ____/5)

e. Money Demand. ( ____/5)

f. Money Market – Make sure to include a graph! ( ____/10)

g. Loanable Funds Market – Make sure to include a graph! ( ____/10)

2. ( ____/25) Central Bank and Control of the Money Supply

Define (WITH CITATIONS) and give specific examples of each of the following:

a. Tools of Central Bank Policy Make sure to provide a complete response here! ( ____/15)

b. Quantity Theory of Money ( ____/5)

c. Real vs. Nominal Interest Rates ( ____/5)

3. ( ____/18 Points) Practice Free Response Questions

Complete the attached FRQs on lined paper. Make sure to provide complete answers and label all
graphs completely.

FRQ #1: ( ____/6)

FRQ #2: ( ____/12)


FRQ #1 (Unit 4)

1. The Federal Reserve can influence the supply of money.


(a) Assume that the Federal Reserve targets a lower federal funds rate.
(i) What open market operation can the Federal Reserve use to achieve the lower target?
(ii) Given your answer to part (a)(i), what will happen to the price of government bonds?
(b) Using a correctly labeled graph of the money market, show the effect of the open market operation
from part (a)(i) on the nominal interest rate.
(c) Assume that the Federal Reserve buys government bonds from commercial banks. Based only on this
transaction, will the level of required reserves in the commercial banks increase, decrease, or remain the
same?
(d) Another monetary policy action involves changing the discount rate. Define the discount rate.

FRQ # 2 (Unit 4)

1. Assume that the country of Rankinland is currently in recession.


(a) Assume that Rankinland produces only food and clothing. Draw a correctly labeled production
possibilities curve for Rankinland. Show a point that could represent the current output combination and
label it Point A.
(b) Assume that the Central Bank of Rankinland pursues an expansionary monetary policy.
(i) Identify the open-market operation that the Central Bank would use.
(ii) Draw a correctly labeled money market graph and show the short-run effect of the
expansionary monetary policy on the nominal interest rate.
(iii) Assuming no change to the price level, what happens to the real interest rate as a result of the
expansionary monetary policy? Explain.
(iv) Given your answer to part (b)(iii) regarding the real interest rate, what happens to the real
gross domestic product (GDP) in the short run? Explain.
(c) Suppose Rankinland has a current account deficit. Rankinland’s currency is called the bera.
(i) What will initially happen to the current account deficit in Rankinland solely due to the
change in the real GDP from part (b)(iv) ? Explain.
(ii) What will happen to the international value of the bera solely due to the change in the real
GDP from part (b)(iv) ? Explain.

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