Financial Sector: one question to try now
Real questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not AP Economics past-paper material.
Question 1
In which context relevant to growth in the money supply is the term total currency flow used?
Answer: C.
What this practice covers
These questions are drawn from past Cambridge papers, mapped across to this topic because the concept is the same. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on financial sector, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Drawing the money supply curve as upward-sloping. It is vertical.
- Putting the real rate on the money market axis, or the nominal rate on loanable funds.
- Using the money multiplier when the question asks for the spending multiplier.
- Applying the multiplier to the whole deposit rather than to excess reserves.
- Getting open market operations backwards, buying bonds is expansionary.
- Forgetting that the multiplier is a maximum, and that leakages reduce it.
- Shifting money demand when the central bank acts; the bank shifts supply.
- Saying bond prices and interest rates move together. They move inversely.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Financial Sector revision notes.