In the Keynesian View, the Fed's Decision to Reduce the Fed

question 39

Multiple Choice

In the Keynesian view, the Fed's decision to reduce the fed funds rate, by increasing the banking system's excess reserves, should have consequences. Which of the below is NOT one of these consequences?

• A) Banks, as the first economic units to be affected, will have more reserves and lower returns from lending in the fed funds market.
• B) Banks will reduce the cost of loans to businesses and consumers and the return (if any) available to investors on short-term deposits.
• C) Investors will be confronted with higher yields on short-term assets, such as Treasury bills and certificates of deposit.
• D) Declines in the general cost of funding will encourage firms to expand and increase their output.

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Definitions:

Mathematical Formula

An equation or expression representing a relationship between mathematical symbols and quantities.

Hydrogen Ion Concentration

A measure of the acidity or alkalinity of a solution, often expressed in terms of pH.

pH

A measurement system designed to indicate the level of acidity or alkalinity in water-based solutions, ranging from 0 (highly acidic) to 14 (highly alkaline), with the midpoint, 7, representing a neutral pH.

Buffer

A solution that resists changes in pH when acid or alkali is added to it.