Didn’t take AP Micro, because my school doesn’t offer it, but I wish I could have. It seems interesting also.</p>
@orangefoot I believe the answer would be B, through process of elimination. I assume that if the Fed reduces the money supply, the amount of reserves in the banking system would decrease. If the Fed achieves this by selling bonds, they will be taking money people would otherwise deposit into the bank.</p>
Yea, B’s the answer. But why can’t it be E? Price level falls right? So domestic goods are more cheaper to foreigners. So the exports are demanded more.</p>
Also, can someone help me distinguish between total reserves, excess reserves and actual reserves?</p>
I just read the Macroeconomics study-prep book. (finished 5 mn ago) Now, I will begin taking practice tests for micro.</p>
God save me.</p>
RaRugged, that’s a bad idea. Do not do practice tests when there’s only 7 hours left till the exam.
Skip through this thread, and get a good sleep. I refreshed my memories just by skimming this thread.</p>
@orangefoot It can’t be E since if the Fed decreases the money supply, the supply of money on the foreign exchange market also decreases. This causes the currency to appreciate, which decrease exports and increases imports.</p>
Total reserves is the total amount of reserves that a bank or thrift holds, either on site or at the Federal Reserves. Total reserves is excess reserves + required reserves. Required reserves is the portion of total deposits that a bank or thrift must hold as declared by the Federal Reserve. Excess reserves are the “extra” money a bank has left over after setting aside its required reserves. A bank or thrift can only loan out money equal to its required reserves.</p>
I’m pullin’ an all nighta’ tonight.</p>
Btw, do we need a ruler?</p>
Lol no ruler necessary…I don’t think they would care if your S/D curvers were jagged.</p>
nope. Good luck with your all nighter. Why not sleep at least at 4am though. Something about sleep helping you “save” all that info. I’m not sure if it’s scientifically proven :P</p>
Thanks drice.</p>
Could someone please explain derived demand for me?</p>
how do you determine the terms of trade that create mutually advantageous trade between two countries??</p>
Derived demand means that the demand curve for the labor market comes from the change in the demand curve in the product market. For example if the demand for a product increases then the demand for the workers to make that product increase.</p>
^^^^ that varies from each individual to the other</p>
A macro question on which I’d like clarification:</p>
<ol>
<li>In the country of Agronomia, banks charge 10% interest on all loans. If the general price level has been increasing at the rate of $5 a year, the real rate of interest in Agronomia is</li>
</ol>
A) 14%
B) 10%
C) 6%
D) 4%
E) 2.5%</p>
The answer is C…I have no idea how to arrive at 6%. Help please?</p>
One more:</p>
<ol>
<li>A commercial bank has $15,000 total reserves, $70,000 securities, and $15,000 in loans as assets, and $100,000 in demand deposits liabilities. If the reserve requirement is 12% and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is
(A) $15,000
(B) $12,000
(C) $3,000
(D) $1,800
(E) 0</li>
</ol>
@thealt
Not sure about 35, but I know that 39 is definitely C) $3000. The bank holds 15,000 in reserves, when the reserve requirement is only 12%, which means if they held no more than the reserve requirement, they’d only hold $12,000. Therefore, the maximum additional lending would be $15,000-$12,000 = $3000.</p>
@thealt, also are you sure that it’s $5 dollars a year? And not 4% inflation a year?</p>
Is that from an actual AP exam? I can’t imagine CB giving such an awkward number like 12 since we that might take a while (for me at least) to calculate everything.</p>
Edit: O wait nevermind it’s not that hard of a calculation :P</p>
@bopbopbop Mutually advantageous terms of trade are where the opportunity costs for both countries when importing are lower than if they produced it themselves. So for example say
Fish Wheat
Country A 10 labor-hours 20 labor-hours
Country B 20 labor-hours 60 labor-hours</p>
Country A produced fish at a cost of 1/2 wheat, and wheat at 2 fish. Country B produces fish at a cost of 1/3 wheat and wheat at 3 fish. For mutually advantageous trade, less than three fish but greater than two must be traded for one unit of wheat. If you do the math, it’ll help you to understand better.</p>
Edit: Good luck all. I’ll be back to check how it went. Hopefully we will all get 5s.</p>
Both questions were on the 2005 AP Macro exam. However, the test doesn’t seem to be the original; there were a few typos, so I assumed that a teacher typed out the questions and choices. I’m guessing there’s a problem with #35. </p>
Thanks for the clarification on 39. I got distracted by the other numbers.</p>