When the Economy Began a Downturn in 2007, One That

question 28

Multiple Choice

When the economy began a downturn in 2007, one that rapidly worsened when the global financial system came to the brink of collapse in 2008, the Federal Reserve significantly lowered the ______________ in order to boost the economy, eventually lowering it to nearly rock bottom before pushing it upwards again in 2018.

• A) federal funds rate (i.e., the interest rate charged by one bank to another)
• B) discount rate (i.e., the interest it charges on loans it extends to member banks)
• C) reserve requirement (i.e., the amount of cash and securities that every bank must have to cover withdrawals)
• D) open-market rate (i.e., the interest it charges on loans it extends to member banks)

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Definitions:

Long-run Equilibrium

A state in which all factors of production and costs are variable, allowing firms to make adjustments until they reach a point of no economic profit or loss.

Perfectly Competitive Market

A market structure characterized by numerous small firms, identical products, and easy entry and exit, leading to a situation where no single firm can influence market prices.

Average Total Cost

The total cost of production divided by the quantity of output produced; encompasses both fixed and variable costs.

Long-run Equilibrium

A state where all the factors of production in an economy are being used in the most efficient way, leading to a situation where there is no tendency for change.