The Federal Reserve cut the federal funds rate seven times between September 2007 and March 2008. What event led the Fed to make these reductions in the federal funds rate?
A) The chairman of the Federal Reserve System persuaded members of the Federal Open Market Committee to lower interest rates in order to reduce the price of oil in international markets.
B) During this period there was a substantial reduction in the demand for housing.
C) It was in response to reductions in the discount rate, which was also lowered seven times over the same time period.
D) Several large investment banks failed during this time period.
B
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Explain the connection between the price of a financial asset and its interest rate
What will be an ideal response?
If P = MC for all goods in a free-market economy, then
a. the desire for utility maximization will lead consumers to buy the amount of each good at which MU = MC. b. the desire for profit maximization will lead consumers to buy the amount of each good at which MU = MC. c. the desire for utility maximization will lead consumers to buy only those goods that have low opportunity costs. d. the desire for profit maximization will lead all firms to stop producing in the long run (though possibly not in the short run).