Question

After the housing market collapse in the late 2000s, the U.S. economy suffered a downturn. In what ways could the Federal Reserve reduce the size of this downturn?

A. It could raise the interest rates to double what they were.

B. It could decrease the interest rates on bank loans.

C. It could buy and rebuild houses to create jobs.

D. It could sell mortgages to improve housing market growth.

Answer 1

my educated guess would be (B) because that's what the Fed did. It reduced interest rates on loans that banks make to each other to near zero as part of its efforts to stimulate the economy and keep it liquid.

Answer 2

B. It could decrease the interest rates on bank loans.

Step-by-step explanation:

Following the housing collapse of the 2000s, the US economy entered a crisis phase, so that economic activity slowed down. In such a situation, the Federal Reserve may adopt an expansionary monetary policy aimed at boosting and fueling the economy. Lowering interest rates is an expansionary monetary policy aimed at lowering the cost of borrowing in the economy as a whole. This would therefore be a viable option for the Federal Reserve.