Unit 4: Financial Sector
Macro · Unit 4 · Paper 1

Financial Sector unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 57 terms and is the same for everyone, so a teacher can assign “Unit 4, Paper 1” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 33 min 30 points0/17 attempted
1

Required reserves

2

Excess reserves

3

Quantity theory of money

4

Interest on reserves as a floor

5

What shifts money demand

6

Why bond prices move opposite to rates

7

Why the reserve requirement is not the working tool

8

Monetary neutrality

9

Why actual money creation falls short of the maximum

10

Commodity vs fiat money

11

The monetary transmission chain

12

Dual mandate

Short answer 1. Define or explain: What shrinks the real multiplier

3 pts

Short answer 2. Define or explain: M2

3 pts

Short answer 3. Define or explain: How a loan creates money

3 pts

Short answer 4. Define or explain: Why monetary and fiscal lags differ

3 pts

Free response

6 pts

Loriland is producing below full employment (a recessionary gap).

Draw a correctly labeled AD-AS graph showing the current short-run equilibrium relative to full-employment output Yf.

Identify one fiscal policy to close the gap.

Using the money market, show and explain the effect of an expansionary open-market operation on the nominal interest rate.

Explain how that interest-rate change affects AD and real GDP.