Macro · Unit 4 · Paper 3

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 1 Paper 2 Paper 3

Each paper is built from this unit’s 36 terms and is the same for everyone, so a teacher can assign “Unit 4, Paper 3” 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 32 min 29 points0/17 attempted

Money demand curve

Required reserves

Liquidity trap

Quantity theory of money

Monetary neutrality

Loanable funds market

Shifters of loanable funds supply

Why bond prices and interest rates move inversely

Dual mandate

Expansionary monetary policy

Reserve requirement

Short answer 1. Define or explain: Where savings deposits sit — and why sources disagree

3 pts

Short answer 2. Define or explain: Interest on reserve balances

3 pts

Short answer 3. Define or explain: Why actual money creation falls short of the maximum

3 pts

Short answer 4. Define or explain: Contractionary monetary policy

3 pts

Free response

5 pts

SHORT FREE-RESPONSE. Assume the banking system in Kelvia has no excess reserves and the required reserve ratio is 10 percent. The central bank purchases $200 million of government bonds from commercial banks.

Calculate the immediate change in the excess reserves of the commercial banking system and explain your reasoning.

Calculate the maximum possible change in the money supply that could result, showing your work.

Indicate whether the nominal interest rate in the money market rises, falls, or stays the same, and explain why using the money market.

Explain one reason the actual change in the money supply is likely to be smaller than the maximum you calculated in part (b).