AP MACROECONOMICS FINAL STUDY
GUIDE QUESTIONS AND CORRECT
ANSWERS COMPLETE PREPARATION
PACK
●● Which of the following will lead to a decrease in a nation's money
supply.
A) A decrease in income tax rates
B) A decrease in the discount rate
C) An open market purchase of government securities by the central
bank
D) An increase in reserve requirements
E) An increase in government expenditures on goods and services
Answer: D) An increase in reserve requirements
An increase in reserve requirements causes the money multiplier to
decrease. Also, banks are not able to lend out as much money since they
are required to save more.
●● An increase in which of the following would cause the aggregate
demand curve to shift to the left?
,A) Consumer optimism
B) Population
C) Cost of resources
D) Income taxes
E) Net exports
Answer: D) Income taxes
Income taxes being increased would allow consumers to spend less,
which would cause consumers to demand products at a lower price. A
leftwards shift indicates more demand for cheaper products, so income
taxes would cause the aggregate demand curve to shift left.
●● Which of the following changes in the supply of and and the demand
for a good will definitely result in a decrease in both the equilibrium
price and quantity of the good?
A) Supply: Increase ; Demand: Increase
B) Supply: Increase ; Demand: No change
C) Supply: No change ; Demand: Decrease
D) Supply: Decrease ; Demand: Increase
E) Supply : Decrease ; Demand : Decrease
Answer: C) Supply: No change ; Demand: decrease
, ●● Liabilities: Demand Deposits ; Assets: Actual reserves, loans
Bank A:
Actual Reserves: $1,000 ; Loans: $4,000 ; Demand deposits: $5,000
Bank B:
Actual reserves: $100 ; Loans: $500 ; Demand deposits: $600
Bank C:
Actual reserves: $10 ; Loans: $90 ; Demand deposits: $100
Based on the balance sheets above for three different banks, which of the
following is true, if the reserve requirement is 10 percent?
A) Bank A has no excess reserves
B) Bank B has no excess reserves
C) Bank B can increase its loans by $500
D) Bank B can increase its loans by $40
E) Bank C has excess reserves
Answer: D) Bank B can increase its loans by $40
To find the amount that needs to be in the actual reserves, you must take
10% of the demand deposits. This results in 0.1 * 600 = 60. Using this
GUIDE QUESTIONS AND CORRECT
ANSWERS COMPLETE PREPARATION
PACK
●● Which of the following will lead to a decrease in a nation's money
supply.
A) A decrease in income tax rates
B) A decrease in the discount rate
C) An open market purchase of government securities by the central
bank
D) An increase in reserve requirements
E) An increase in government expenditures on goods and services
Answer: D) An increase in reserve requirements
An increase in reserve requirements causes the money multiplier to
decrease. Also, banks are not able to lend out as much money since they
are required to save more.
●● An increase in which of the following would cause the aggregate
demand curve to shift to the left?
,A) Consumer optimism
B) Population
C) Cost of resources
D) Income taxes
E) Net exports
Answer: D) Income taxes
Income taxes being increased would allow consumers to spend less,
which would cause consumers to demand products at a lower price. A
leftwards shift indicates more demand for cheaper products, so income
taxes would cause the aggregate demand curve to shift left.
●● Which of the following changes in the supply of and and the demand
for a good will definitely result in a decrease in both the equilibrium
price and quantity of the good?
A) Supply: Increase ; Demand: Increase
B) Supply: Increase ; Demand: No change
C) Supply: No change ; Demand: Decrease
D) Supply: Decrease ; Demand: Increase
E) Supply : Decrease ; Demand : Decrease
Answer: C) Supply: No change ; Demand: decrease
, ●● Liabilities: Demand Deposits ; Assets: Actual reserves, loans
Bank A:
Actual Reserves: $1,000 ; Loans: $4,000 ; Demand deposits: $5,000
Bank B:
Actual reserves: $100 ; Loans: $500 ; Demand deposits: $600
Bank C:
Actual reserves: $10 ; Loans: $90 ; Demand deposits: $100
Based on the balance sheets above for three different banks, which of the
following is true, if the reserve requirement is 10 percent?
A) Bank A has no excess reserves
B) Bank B has no excess reserves
C) Bank B can increase its loans by $500
D) Bank B can increase its loans by $40
E) Bank C has excess reserves
Answer: D) Bank B can increase its loans by $40
To find the amount that needs to be in the actual reserves, you must take
10% of the demand deposits. This results in 0.1 * 600 = 60. Using this
