1. Which statement about the Federal Reserve System is true? For major policy issues, the 12 banks act as one. The Board of Governors has little control over major decisions.

2. In the 1920s, what was a main cause of bank closures in rural areas? Low farm prices leading to farmers being unable to pay their loans when they came due. Banks being unwilling to lend their excess reserves. 3. There most likely would have been fewer failed savings and loans in the 1980s if ______.

interest rates had remained flat in the 1970s

their accounts were FDIC insured

4. How would the Fed most likely attempt to curb inflation?

decrease interest rates

lower the discount rate

reduce the money supply

5. Which of the following causes bond sellers to lower interest rates?

a fluctuating demand for bonds

an increased demand for bonds

a steady demand for bonds

6. Which of the following is an accurate sequence concerning RGDP demand?

Lower price levels lead to decreased demand for money, which leads to lower interest rates, which lead to increased RGDP demand.

Increased RGDP demand leads to lower price levels, which lead to lower interest rates, which lead to decreased demand for money.

Lower price levels lead to lower interest rates, which lead to decreased demand for money, which leads to increased RGDP demand.

7. Which of the following is an accurate sequence concerning an expansionary money policy?

Increase in money supply leads to decrease in RGDP demand, which leads to increase in interest rates.

Increase in money supply leads to decrease in interest rates, which leads to increase in RGDP demand.

Increase in money supply leads to increase in interest rates, which leads to decrease in RGDP demand.

8. Which of the following would counteract an expansionary policy?

a nation has an unemployment problem

a nation is at full employment

companies are producing below capacity

9. Which of the following accurately shows the different effects of (A) an expansionary monetary policy and (B) a contractionary monetary policy in the open economy?

(A) will appreciate the dollar; (B) will depreciate the dollar.

(A) will increase imports; (B) will decrease imports.

(A) will increase exports; (B) will decrease exports.

10. Which of the following examples is most likely the result of an expansionary monetary policy?

LTW, Inc takes out a loan for $10 million to update equipment.

The government sells a large number of bonds.

Loren decides to wait a while before she looks into financing for a house.

11. Which of the following would decrease during a contractionary monetary policy?

interest rate

aggregate demand

discount rate

12. In the equation of exchange, which of the following is the GDP deflator?

real output

price level

money supply

13. Which of the following is an accurate statement about the quantity theory of money and prices?

It is a good theory of inflation in the long run.

It hinges on the assumption that velocity varies.

It assumes that if money supply grows at a faster rate than RGDP, price level will drop.

14. Which of the following would counteract the Fed's expansionary monetary policy?

Banks sit on the reserves provided by the Fed.

Banks use reserves provided by the Fed for business loans.

Banks lower interest rates after receiving reserves from the Fed.

15. Which of the following would most likely cause an expansionary policy to create inflation?

Businesses have less confidence in the economy.

Consumer confidence in the economy rises sharply.

Banks decrease their loans to businesses.

16. Which of the following makes the Fed's monetary policies inexact?

an inability to predict how economies will change

an inability to gather accurate statistics

an inability to analyze economic trends

17. In the flat region of the SRAS curves, a contractionary policy would ______.

increase output significantly

decrease output significantly

increase output slightly

18. Which of the following examples illustrates what would happen over the flat range of the short-run aggregate supply curve?

BestLink, Inc increases production, which causes a slight increase in marginal cost.

A slight decrease in output causes the price level of KDT's products to change significantly.

Even though GDW, Inc. runs double shifts, it cannot expand output.

19. Which of the following examples would make banks the most hesitant about giving loans?

A bank receives $7 million from the Fed; interest rates are at 2 percent.

A bank receives $3 million from the Fed; interest rates are at 7 percent.

A bank receives $8 million from the Fed; interest rates are at 8 percent.

20. If the Fed begins a contractionary policy, which of the following examples would counteract this policy?

A bank in Chicago increases the number of loans it issues.

A German bank significantly reduces the number of loans it issues.

A Mexican insurance company maintains the same loan policy.

21. Which of the following is an example of an imperfect information problem with monetary policy?

After the government decreases spending, business confidence in investing decreases.

The government implements a tax increase after the Fed increases the money supply.

The government miscalculates by 10 percent how much the RGDP should increase.