Recall the Application About the Fed's Response to the Collapse

question 31

Multiple Choice

Recall the Application about the Fed's response to the collapse of the investment house Bear Stearns as well as its handling of the 2008 financial crisis with respect to other financial institutions to answer the following question(s) .
-According to this Application, the Fed increased its lending by hundreds of billions of dollars to financial institutions as a response to the ongoing financial crisis. This increase in loans to financial institutions increased the supply of money in the economy. When the supply of money increases, the money supply curve will

• A) shift to the right, increasing the interest rate.
• B) shift to the right, decreasing the interest rate.
• C) shift to the left, increasing the interest rate.
• D) shift to the left, decreasing the interest rate.

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Definitions:

Disposable Income

The amount of money an individual or household has to spend or save after taxes have been deducted.

Price Increase

A rise in the cost of goods or services, often reflecting inflation or demand changes.

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed funds and exchange traded funds.

Securities

Financial instruments that represent an ownership position, a creditor relationship, or rights to ownership, expressed in the form of stocks, bonds, or options.