Question

1. ​Which of the following statements is correct regarding the Fed?

a. ​Under the Federal Reserve System, there is one Federal Reserve Bank whose location changes every 14 years.

b. ​Under the Federal Reserve System, there is one Federal Reserve Bank, located in Washington D.C.

c. ​Under the Federal Reserve System, there are 12 Federal Reserve banks, one in each of the 12 Federal Reserve districts.

d. ​Under the Federal Reserve System, there is a Federal Reserve Bank in each state.

e. ​Under the Federal Reserve System, there is a Federal Reserve Bank in each Congressional district.

2. ​Raising the discount rate is:

a. ​an expansionary policy because it raises the ratio of excess to total reserves in the banking system.

b. ​an expansionary policy on the part of the member banks of the Fed because it raises their profits relative to those of the nonmember banks.

c. ​an expansionary policy on the part of the Fed because increasing the interest rates that the banks are allowed to charge will increase their willingness to make loans.

d. ​a contractionary policy on the part of the member banks of the Fed because it raises the firms' costs of borrowing from them.

e. ​a contractionary policy on the part of the Fed because it raises the commercial banks' cost of borrowing from it.

3. ​Given an upward sloping aggregate supply curve, which of the following changes in the aggregate demand curve is observed when the Fed reduces the money supply?

a. ​The aggregate demand curve shifts rightward, lowering real GDP but raising the price level.

b. ​The aggregate demand curve shifts leftward, raising real GDP and the price level.

c. ​The aggregate demand curve shifts leftward, lowering real GDP but raising the price level.

d. ​The aggregate demand curve shifts rightward, raising real GDP and the price level.

e. ​The aggregate demand curve shifts leftward, lowering real GDP and the price level.

4. ​If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply, aggregate demand:

a. ​increases, which decreases real GDP and the price level.

b. ​increases, which decreases real GDP and increases the price level.

c. ​falls, which decreases real GDP and increases the price level.

d. ​falls, which increases real GDP and the price level.

e. ​increases, which increases real GDP and the price level.

Answer 1

1) Option "C " is correct ​Under the Federal Reserve System, there are 12 Federal Reserve banks, one in each of the 12 Federal Reserve districts.

2) Option "a" is correct i.e ​an expansionary policy because it raises the ratio of excess to total reserves in the banking system.

The Federal Reserve takes steps to rise excess reserves, banks can make more loans by raising the money supply, which lowers the interest rate and rise  investment which, in turn, raise  GDP by multiple amounts of the change in investment

3) Option "e" is correct i.e The aggregate demand curve shifts leftward, lowering real GDP and the price level

If the Federal Reserve decreases the money supply, then the aggregate demand curve shifts leftward. This result is based on the quantity equation MV = PY, which tells us that a fall in money M leads to a proportionate fall in nominal output PY where V( velocity is constant)

4) Option "e" is correct i.e increases, which increases real GDP and the price level.

If the Federal Reserve increases the money supply, then the aggregate demand curve shifts rightward. This result is based on the quantity equation MV = PY, which tells us that a rise in money M leads to a proportionate rise in nominal output PY where V( velocity is constant)

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