AP®︎ Macroeconomics: Topic 4.4 Practice Test
Prepare for your quiz, test, or the AP exam with focused practice questions on Topic 4.4 of AP Macroeconomics – Banking and the Expansion of the Money Supply.
Questions List
Topic 4.4
Question 1 Easy
This question tests the following: POL-2.A.1
What is the primary role of banks?
What You’re Being Tested On:
Explore the learning objectives taken directly from the College Board’s AP® Macroeconomics Curriculum. Ensure you’re prepared for the exact topics covered on the AP® exam, in-class tests, and quizzes, and gain confidence in your mastery of the material.
Topic 4.4: Banking and the Expansion of the Money Supply
Learning Objective: POL-2.A
a. Define key terms related to the banking system and the expansion of the money supply. b. Explain how the banking system creates and expands the money supply. c. Calculate (using data and balance sheets as appropriate) the effects of changes in the banking system.
Essential Knowledge: POL-2.A.1
Depository institutions (such as commercial banks) organize their assets and liabilities on balance sheets.
Essential Knowledge: POL-2.A.2
Depository institutions operate using fractional reserve banking.
Essential Knowledge: POL-2.A.3
Banks’ reserves are divided into required reserves and excess reserves.
Essential Knowledge: POL-2.A.4
Excess reserves are the basis of expansion of the money supply by the banking system.
Essential Knowledge: POL-2.A.5
The money multiplier is the ratio of the money supply to the monetary base.
Essential Knowledge: POL-2.A.6
The size of expansion of the money supply depends on the money multiplier.
Essential Knowledge: POL-2.A.7
The maximum value of the money multiplier can be calculated as the reciprocal of the required reserve ratio.
Essential Knowledge: POL-2.A.8
The amount predicted by the simple money multiplier may be overstated because it does not take into account a bank’s desire to hold excess reserves or the public holding more currency.
