AP Macroeconomics : Other Money Supply
Study concepts, example questions & explanations for AP Macroeconomics
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Example Questions
Example Question #1 : Money Supply
Which of the following is not a part of M1?
Money in a personal savings account
Traveler's checks
A check that has been written but not yet deposited
Paper money
All of these are a part of M1.
Money in a personal savings account
Money in a personal savings account would not be considered a part of M1. The reason for this is that money in a savings account is considered to be lacking in liquidity - as a result, money in a savings account is considered to belong to M2.
Example Question #4 : Money Supply
An increase in the money supply curve would most likely result in which of the following situations?
A decrease in the real interest rate
An increase in the real interest rate
A decrease in the quantity of money available
No effect on the real interest rate
A decrease in the real interest rate
As with any supply curve increase, price decreases and quantity increases.
Since in the market for money, price is referred to as the interest rate (i.e. the price of borrowing money), the decrease in price is interpreted as a decrease in the interest rate.
An increase (not a decrease) in the quantity of money available would be expected after an increase in the money supply curve.
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