AP Microeconomics Exam 2
Review QUESTIONS AND
VERIFIED CORRECT
ANSWERS GRADED A+
LATEST 100% GUARANTEED
PASS
Demand Deposit - CORRECT ANSWER-A deposit in a commercial bank against which checks may
be written. Also known as a "checkable deposit".
Depreciation - CORRECT ANSWER-A decrease in the value of one currency relative to another,
resulting from a decrase in demand for or an increase in the supply of the currency on the
foreign exchange market.
Devaluation - CORRECT ANSWER-When a government intervenes in the market for its own
currency to weaken it relative to another currency.
Discount Rate - CORRECT ANSWER-One of the three tools of monetary policy, it is the interest
rate that the federal government charges on the loans it makes to commercial banks.
Economic Growth - CORRECT ANSWER-An increase in the potential output of goods and
services in a nation over time.
Economic Resources - CORRECT ANSWER-Land, labor, capital, and entrepreneurial ability that
are used in the production of goods and services. They are "economic" resources because they
are scarce (limited in supply and desired). Also known as "factors of production".
,Excess Reserves - CORRECT ANSWER-The amount by which a bank's actual reserves exceed its
required reserves. Banks can lend excess reserves; when they do, they expand the money
supply. The amount of excess reserves in the banking system determines equilibrium interest
rate.
Exchange Rate: - CORRECT ANSWER-The price of one currency in terms of another currency,
determined in the forex market.
Exports - CORRECT ANSWER-The spending by foreigners on domestically produced goods and
services. Counts as an injection into a nation's circular flow of income.
Federal Funds Rate - CORRECT ANSWER-The interest rate banks charge one another on
overnight loans made out of their excess reserves. The FFR is the interest rate targeted by the
Fed Res Bank through it's open market operations.
Fiscal Policy - CORRECT ANSWER-Changes in government spending and tax collections
implemented by government with the aim of either increasing or decreasing aggregate demand
to achieve the macroeconomic objectives of full employment and price-level stability.
Floating Exchange Rate System: - CORRECT ANSWER-When a currency's exchange rate is
determined by the free interaction of supply and demand in international forex markets.
Forex Markets (Foreign Exchange Market) - CORRECT ANSWER-The market in which
international buyers and sellers exchange foreign currencies for one another to buy and sell
goods, services, and assets from various countries. It is where a currency's exchange rate
relative to other currencies is determined.
Fractional Reserve Banking - CORRECT ANSWER-A banking system in which banks hold only a
fraction of deposits as required reserves and can lend some of the money deposited by their
customers to other borrowers
, Full Employment - CORRECT ANSWER-When an economy is producing at a level of output at
which almost all the nation's resources are employed. The unemployment rate when an
economy is at full employment equals the natural rate, and includes only frictional and
structural unemployment. Full-employment output is also referred to as "potential output".
GDP (Gross Domestic Product) - CORRECT ANSWER-The total market value of all final goods and
services produced during a given time period within a country's borders.
Human Capital - CORRECT ANSWER-The value skills integrated into labor through education,
training, knowledge, and health. An important determinant of aggregate supply and the level of
economic growth in a nation.
Imports - CORRECT ANSWER-Spending on goods and services produced in foreign nations.
Counts as a leakage from a nation's circular flow of income.
Inflation - CORRECT ANSWER-A rise in the average level of prices in the economy over time
(percentage change in the CPI)
Interest Rate - CORRECT ANSWER-The opportunity cost of money. Either the cost of borrowing
money or the cost of spending money (e.g., the interest rate is what would be given up by not
saving money). Conversely, this is the price a lender is paid for allowing someone else to use
money for time.
Investment - CORRECT ANSWER-A component of aggregate demand, it includes all spending on
capital equipment, inventories, and technology by firms. Also includes household purchasing of
newly constructed residences.
Law of Increased Opportunity Cost - CORRECT ANSWER-As more of particular product is
produced, the opportunity cost, in terms of what must be given up of other goods to produce
Review QUESTIONS AND
VERIFIED CORRECT
ANSWERS GRADED A+
LATEST 100% GUARANTEED
PASS
Demand Deposit - CORRECT ANSWER-A deposit in a commercial bank against which checks may
be written. Also known as a "checkable deposit".
Depreciation - CORRECT ANSWER-A decrease in the value of one currency relative to another,
resulting from a decrase in demand for or an increase in the supply of the currency on the
foreign exchange market.
Devaluation - CORRECT ANSWER-When a government intervenes in the market for its own
currency to weaken it relative to another currency.
Discount Rate - CORRECT ANSWER-One of the three tools of monetary policy, it is the interest
rate that the federal government charges on the loans it makes to commercial banks.
Economic Growth - CORRECT ANSWER-An increase in the potential output of goods and
services in a nation over time.
Economic Resources - CORRECT ANSWER-Land, labor, capital, and entrepreneurial ability that
are used in the production of goods and services. They are "economic" resources because they
are scarce (limited in supply and desired). Also known as "factors of production".
,Excess Reserves - CORRECT ANSWER-The amount by which a bank's actual reserves exceed its
required reserves. Banks can lend excess reserves; when they do, they expand the money
supply. The amount of excess reserves in the banking system determines equilibrium interest
rate.
Exchange Rate: - CORRECT ANSWER-The price of one currency in terms of another currency,
determined in the forex market.
Exports - CORRECT ANSWER-The spending by foreigners on domestically produced goods and
services. Counts as an injection into a nation's circular flow of income.
Federal Funds Rate - CORRECT ANSWER-The interest rate banks charge one another on
overnight loans made out of their excess reserves. The FFR is the interest rate targeted by the
Fed Res Bank through it's open market operations.
Fiscal Policy - CORRECT ANSWER-Changes in government spending and tax collections
implemented by government with the aim of either increasing or decreasing aggregate demand
to achieve the macroeconomic objectives of full employment and price-level stability.
Floating Exchange Rate System: - CORRECT ANSWER-When a currency's exchange rate is
determined by the free interaction of supply and demand in international forex markets.
Forex Markets (Foreign Exchange Market) - CORRECT ANSWER-The market in which
international buyers and sellers exchange foreign currencies for one another to buy and sell
goods, services, and assets from various countries. It is where a currency's exchange rate
relative to other currencies is determined.
Fractional Reserve Banking - CORRECT ANSWER-A banking system in which banks hold only a
fraction of deposits as required reserves and can lend some of the money deposited by their
customers to other borrowers
, Full Employment - CORRECT ANSWER-When an economy is producing at a level of output at
which almost all the nation's resources are employed. The unemployment rate when an
economy is at full employment equals the natural rate, and includes only frictional and
structural unemployment. Full-employment output is also referred to as "potential output".
GDP (Gross Domestic Product) - CORRECT ANSWER-The total market value of all final goods and
services produced during a given time period within a country's borders.
Human Capital - CORRECT ANSWER-The value skills integrated into labor through education,
training, knowledge, and health. An important determinant of aggregate supply and the level of
economic growth in a nation.
Imports - CORRECT ANSWER-Spending on goods and services produced in foreign nations.
Counts as a leakage from a nation's circular flow of income.
Inflation - CORRECT ANSWER-A rise in the average level of prices in the economy over time
(percentage change in the CPI)
Interest Rate - CORRECT ANSWER-The opportunity cost of money. Either the cost of borrowing
money or the cost of spending money (e.g., the interest rate is what would be given up by not
saving money). Conversely, this is the price a lender is paid for allowing someone else to use
money for time.
Investment - CORRECT ANSWER-A component of aggregate demand, it includes all spending on
capital equipment, inventories, and technology by firms. Also includes household purchasing of
newly constructed residences.
Law of Increased Opportunity Cost - CORRECT ANSWER-As more of particular product is
produced, the opportunity cost, in terms of what must be given up of other goods to produce
