2006, Form B, Question 2 · 6 points
Bank deposits and money creation
Explain why a cash deposit leaves the money supply unchanged at first, calculate new loans and the maximum money supply increase when banks hold excess reserves, and explain what happens to money supply and money demand when the central bank buys new government bonds.
This exam had three free-response questions to answer in 50 minutes of writing time after a 10-minute planning period, with about half the time suggested for Question 1 and the rest split evenly between Questions 2 and 3. The current exam has 3 free-response questions in 60 minutes. The skills these questions practice still count.
Lessons this question draws on
1 Read the question
The question is College Board's, from the 2006, Form B exam. It starts on page 2 of the PDF. College Board no longer posts this exam, so it opens from the copy of College Board's PDF that the Internet Archive saved on June 23, 2024.
2 Write your answer
Answer each part the way you would on the exam, in full sentences, with your work shown. Your writing saves as you type.
3 Score it
Score your answer against College Board's scoring guidelines, one point at a time. Give yourself a point only when your answer says what the guideline asks for.
Scoring guidelines (PDF, page 4)
Question, scoring guidelines and Chief Reader report: College Board, from the Internet Archive. The title, summary are ours.