Unit 4: Financial Sector
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 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 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
1

Money market vs loanable funds: four differences

2

Why money supply is vertical

3

Liquidity ranking

4

Why actual money creation falls short of the maximum

5

Interest on reserve balances

6

Expansionary monetary policy

7

Money market vs loanable funds market

8

Your deposit is the bank's liability

9

Federal funds rate

10

Interest on reserves as a floor

11

Financial asset vs money

12

M2

Short answer 1. Define or explain: The monetary transmission chain

3 pts

Short answer 2. Define or explain: Money demand curve

3 pts

Short answer 3. Define or explain: Reserve requirement

3 pts

Short answer 4. Define or explain: Zero lower bound

3 pts

Free response

5 pts

SHORT QUESTION. The economies of Country L and Country A are currently in short-run equilibrium at output levels below full employment. Both countries intend to use monetary policy to close their output gaps. Country L has a banking system with LIMITED reserves, and Country A has a banking system with AMPLE reserves.

A. What open-market operation would Country L implement to move the economy toward full employment in the short run?

B. What specific monetary policy action would Country A implement to move the economy toward full employment in the short run?

C. Draw (describe) a correctly labeled graph of the reserve market in Country A, and show the effect of the monetary policy action identified in part B on the policy rate.

D. Assume instead that no policy actions are taken in Country A and the economy remains below full employment. Will short-run aggregate supply in Country A increase, decrease, or remain the same as the economy self-adjusts in the long run? Explain.