If the Fed Fears an Economic Downturn, It Would Be

question 86

Multiple Choice

If the Fed fears an economic downturn, it would be most likely to

• A) encourage banks to provide loans by lowering the discount rate.
• B) encourage banks to provide loans by raising the discount rate.
• C) restrict bank lending by lowering the discount rate.
• D) restrict bank lending by raising the discount rate.
• E) restrict bank lending by lowering the federal funds rate.

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Definitions:

Framing Effect

The cognitive bias where people decide on options based on whether they are presented in a positive or negative way, rather than on the content itself.

Confirmation Bias

The inclination to seek out, understand, prefer, and remember details in a manner that validates one's existing opinions or theories.

Sunk Cost Effect

The phenomenon where a person continues an endeavor because of previously invested resources (time, money, or effort), despite potential losses.

Availability Heuristic

The availability heuristic is a mental shortcut that relies on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision.