• 67 questions

AP Macro Unit 4 Practice Test

Unofficial practice for Unit 4 of AP Macroeconomics, Financial Sector: money, banking, interest rates and monetary policy.

Which pair of assets is the most liquid?

Pick an answer, then press Check answer. Then you see Correct or Not quite, with the reason. Keys: A to D pick, Enter checks.

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Unofficial practice questions, not affiliated with the College Board. Bank checked October 14, 2026.

Next step Next unit: AP Macro Unit 5AP Micro Unit 3: production and cost

All 67 questions

Topic 4.1: Financial assets 7

  • A bond pays $60 of interest each year. Its market price rises from $1,000 to $1,200. What happens to the interest rate a new buyer earns on it? College Board, AP Macroeconomics Course and Exam Description, topic 4.1, essential knowledge MEA-3.A.3
  • A saver moves wealth out of a checking account and into bonds. What does the saver give up, and what does the saver gain? College Board, AP Macroeconomics Course and Exam Description, topic 4.1, essential knowledge MEA-3.A.2
  • Interest rates on bonds rise sharply. How does that change the cost of keeping wealth in cash? College Board, AP Macroeconomics Course and Exam Description, topic 4.1, essential knowledge MEA-3.A.4
  • Interest rates on newly issued bonds rise. What happens to the price of bonds that were issued earlier? College Board, AP Macroeconomics Course and Exam Description, topic 4.1, essential knowledge MEA-3.A.3
  • What is the opportunity cost of holding wealth as money? College Board, AP Macroeconomics Course and Exam Description, topic 4.1, essential knowledge MEA-3.A.4
  • What kind of financial asset is a share of stock? College Board, AP Macroeconomics Course and Exam Description, topic 4.1, essential knowledge MEA-3.A.2
  • Which pair of assets is the most liquid? College Board, AP Macroeconomics Course and Exam Description, topic 4.1, essential knowledge MEA-3.A.1
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Topic 4.2: Nominal v. real interest rates 8

  • A lender and a borrower agree on a nominal rate of 5%, both expecting inflation of 2%. Inflation turns out to be 5%. What real rate was actually paid? College Board, AP Macroeconomics Course and Exam Description, topic 4.2, essential knowledge MEA-3.B.3
  • A lender wants a real return of 3% and expects inflation of 2%. What nominal interest rate does the lender ask for? College Board, AP Macroeconomics Course and Exam Description, topic 4.2, essential knowledge MEA-3.B.2
  • A loan carries a nominal interest rate of 7%. Over the life of the loan, inflation turns out to be 4%. What real interest rate did the lender earn? College Board, AP Macroeconomics Course and Exam Description, topic 4.2, essential knowledge MEA-3.B.3
  • A saver earned a nominal 6% and a real 1.5% on the same deposit. What was the rate of inflation? College Board, AP Macroeconomics Course and Exam Description, topic 4.2, essential knowledge MEA-3.B.3
  • A savings account pays a nominal 2% while prices rise 5% over the year. What is the real interest rate? College Board, AP Macroeconomics Course and Exam Description, topic 4.2, essential knowledge MEA-3.B.3
  • Expected inflation rises by 2 percentage points and the expected real interest rate does not change. What happens to nominal interest rates on new loans? College Board, AP Macroeconomics Course and Exam Description, topic 4.2, essential knowledge MEA-3.B.2
  • What is a nominal interest rate? College Board, AP Macroeconomics Course and Exam Description, topic 4.2, essential knowledge MEA-3.B.1
  • Which interest rate can be known for certain only after the loan period is over? College Board, AP Macroeconomics Course and Exam Description, topic 4.2, essential knowledge MEA-3.B.3

Topic 4.3: Definition, measurement and functions of money 7

  • A barber is paid in dollars and spends them at a bakery whose owner never needs a haircut. Which function of money lets that trade happen? College Board, AP Macroeconomics Course and Exam Description, topic 4.3, essential knowledge MEA-3.C.2
  • A store lists every price in dollars, so shoppers can compare a $4 loaf with a $12 pizza. Which function of money is at work? College Board, AP Macroeconomics Course and Exam Description, topic 4.3, essential knowledge MEA-3.C.2
  • A worker puts $200 in a drawer in June and spends it in December. Which function of money made that possible? College Board, AP Macroeconomics Course and Exam Description, topic 4.3, essential knowledge MEA-3.C.2
  • Currency in circulation is $800 billion, bank reserves are $200 billion and demand deposits are $1,500 billion. How large is the monetary base? College Board, AP Macroeconomics Course and Exam Description, topic 4.3, essential knowledge MEA-3.C.4
  • What are M1 and M2? College Board, AP Macroeconomics Course and Exam Description, topic 4.3, essential knowledge MEA-3.C.3
  • What does the monetary base, often labeled M0 or MB, include? College Board, AP Macroeconomics Course and Exam Description, topic 4.3, essential knowledge MEA-3.C.4
  • What makes an asset money? College Board, AP Macroeconomics Course and Exam Description, topic 4.3, essential knowledge MEA-3.C.1

Topic 4.4: Banking and the expansion of the money supply 13

  • A bank has $1,000 of demand deposits and $250 of reserves. The required reserve ratio is 10%. How much does it hold in excess reserves? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.3
  • A bank has deposits of $20,000, reserves of $5,000 and loans of $15,000. The required reserve ratio is 20%. How much more can it lend? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.4
  • A bank holds no excess reserves and the required reserve ratio is 10%. A customer withdraws $100 in cash. By how much do the bank's reserves now fall short of what is required? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.3
  • A bank with no excess reserves receives a new $1,000 cash deposit. The required reserve ratio is 10%. What is the most this one bank can lend from it? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.4
  • A customer moves $500 of cash into a checking account. Before the bank makes any new loan, what has happened to the money supply? College Board, AP Macroeconomics Course and Exam Description, topic 4.1, essential knowledge MEA-3.A.1
  • The central bank raises the required reserve ratio from 10% to 25%. What happens to the maximum money multiplier? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.7
  • How is the money multiplier defined? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.5
  • The money supply is $3,000 billion and the monetary base is $600 billion. What is the money multiplier? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.5
  • The required reserve ratio is 20%. What is the largest value the money multiplier can take? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.7
  • What does fractional reserve banking mean? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.2; fact read in Wikipedia, "Fractional-reserve banking"
  • Where does a customer's checking deposit appear on the balance sheet of the bank that holds it? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.1; fact read in Wikipedia, "Money supply"
  • Which part of a bank's reserves is the basis for new loans and so for growth of the money supply? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.4
  • Why can the money supply grow by less than the simple money multiplier predicts? College Board, AP Macroeconomics Course and Exam Description, topic 4.4, essential knowledge POL-2.A.8

Topic 4.5: The money market 8

  • The nominal interest rate is above its equilibrium level in the money market. What follows? College Board, AP Macroeconomics Course and Exam Description, topic 4.5, essential knowledge MKT-3.C.1
  • The nominal interest rate is below its equilibrium level in the money market. What follows? College Board, AP Macroeconomics Course and Exam Description, topic 4.5, essential knowledge MKT-3.C.1
  • The price level rises and the central bank leaves the money supply alone. What happens in the money market? College Board, AP Macroeconomics Course and Exam Description, topic 4.5, essential knowledge MKT-3.D.1
  • Reserves are limited and the central bank expands the money supply. Which way does the equilibrium nominal rate move? College Board, AP Macroeconomics Course and Exam Description, topic 4.5, essential knowledge MKT-3.D.1
  • What does the money demand curve show? College Board, AP Macroeconomics Course and Exam Description, topic 4.5, essential knowledge MKT-3.A.1
  • What is measured on the vertical axis of the money market graph? College Board, AP Macroeconomics Course and Exam Description, topic 4.5, essential knowledge MKT-3.B.1
  • Which change moves the economy along the money demand curve instead of shifting the curve? College Board, AP Macroeconomics Course and Exam Description, topic 4.5, essential knowledge MKT-3.A.1
  • Why is the money supply curve drawn as a vertical line? College Board, AP Macroeconomics Course and Exam Description, topic 4.5, essential knowledge MKT-3.A.2

Topic 4.6: Monetary policy 14

  • By the course description, what is the key policy tool of the Federal Reserve today? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.2
  • The central bank buys government bonds from commercial banks. What happens first? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.3
  • The central bank lowers the nominal interest rate. What is the short-run chain of effects? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.8
  • The central bank sells government bonds to commercial banks. What happens to reserves and the monetary base? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.3
  • The economy is in an inflationary gap. What does contractionary monetary policy do in the short run? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.7
  • The Federal Reserve announces a target range for the federal funds rate. What kind of rate is that? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.5
  • In a banking system with ample reserves, the central bank wants a lower nominal interest rate. What does it do? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.6
  • In an economy with limited reserves the required reserve ratio is 20%. The central bank buys $10 billion of bonds from banks. What is the largest possible rise in the money supply? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.4
  • Real output is below its full-employment level. Which monetary policy is called for? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.7
  • Which of these can a central bank change directly as a tool of monetary policy? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.2
  • Which of these is a goal the course names for monetary policy? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.1
  • Why does a small open-market purchase do little to the nominal interest rate when reserves are ample? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.6
  • Why does monetary policy work with a lag? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.E.1
  • With limited reserves, why does an open-market purchase change the money supply by more than it changes the monetary base? College Board, AP Macroeconomics Course and Exam Description, topic 4.6, essential knowledge POL-1.D.4

Topic 4.7: The loanable funds market 10

  • A closed economy has private savings of $400 billion and public savings of −$150 billion, a budget deficit. What is national savings? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.B.1
  • A government's borrowing grows to pay for a bigger deficit. Which way does the loanable funds model move the real interest rate? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.E.1
  • An open economy has national savings of $500 billion and a net capital inflow of $80 billion. How much is investment? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.B.2
  • The demand curve for loanable funds slopes downward. What does that say about borrowers? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.A.2
  • The government gives firms an investment tax credit. What happens in the loanable funds market? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.E.2
  • Households decide to save a larger share of their income. What happens in the loanable funds market? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.E.2
  • The real interest rate is above its equilibrium level in the loanable funds market. What follows? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.D.1
  • What is the price in the loanable funds market? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.C.1
  • Who supplies loanable funds, and who demands them? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.A.1
  • Why does the supply curve for loanable funds slope upward? College Board, AP Macroeconomics Course and Exam Description, topic 4.7, essential knowledge MKT-4.A.3

How this list was compiled: Our own questions, written to Unit 4 (Financial Sector) of the College Board's AP Macroeconomics Course and Exam Description, effective fall 2026, https://apcentral.collegeboard.org/media/pdf/ap-macroeconomics-course-and-exam-description.pdf, read 2026-10-14: topics 4.1 to 4.7. The rule behind each answer was read on 2026-10-14 in the essential knowledge statement of the course description named under the question; two banking terms were read in the Wikipedia articles named. Every calculated answer is worked from the numbers the question prints and was worked out a second time. Licence: Own work. Short quotations from the public documents named under each question.

How it works

This AP Macro Unit 4 practice test has 67 questions of our own on the financial sector: money, banks, interest rates and monetary policy. It is unofficial. The College Board owns AP and had no part in these questions.

Read the full guide

What Unit 4 covers

The College Board's course description, effective fall 2026 and read October 14, 2026, gives Unit 4 seven topics and no weights among them, so the spread is ours: financial assets (7 questions), nominal and real interest rates (8), money and its measures (7), banking and the money multiplier (13), the money market (8), monetary policy (14) and the loanable funds market (10).

Limited and ample reserves

The description separates two banking systems. With limited reserves, a central bank moves the nominal interest rate by changing the money supply. With ample reserves, as in the United States, it changes administered rates such as interest on reserves. Where the answer depends on the system, the question says which one it means.

  • In a reserve problem, find required reserves first. Only what is left over, the excess, can be lent.

Questions and answers

What is Unit 4 of AP Macroeconomics?

Financial Sector, the fourth of six units. It carries 18 to 23% of the multiple-choice section, by the College Board's course page, and the description allows about 11 to 13 class periods.

What should a Unit 4 AP Macroeconomics study guide cover?

The terms behind each topic: liquidity, bonds and stocks; nominal and real interest rates; the functions of money, M1, M2 and the monetary base; required and excess reserves; the money multiplier; the money market; the tools of monetary policy; the loanable funds market.

How do you calculate the money multiplier?

Divide the money supply by the monetary base. Its largest possible value is 1 divided by the required reserve ratio, so a 10% ratio allows at most 10. Excess reserves that banks keep and currency the public holds make the real figure smaller.

What is the difference between the money market and the loanable funds market?

The money market sets the nominal interest rate, where money demand meets a money supply the central bank fixes. The loanable funds market sets the real interest rate, where the funds savers offer meet the funds borrowers want.

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