In Late 2007, the Fed Began a Series of Cuts

question 139

Multiple Choice

In late 2007, the Fed began a series of cuts in the federal funds rate.Because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was

• A) to raise the price of the dollar in the foreign exchange market.
• B) to avoid a recession.
• C) to encourage households to save more money.
• D) to reduce the natural unemployment rate.
• E) to increase the real interest rate.

---

Definitions:

Consumption

The act of using goods and services by households, which is a primary component in measuring gross domestic product (GDP) in economics.

Consumer's Surplus

The disparity between what consumers are prepared and can afford to spend on a product or service and the actual amount they end up paying.

Total Amount

The complete sum or quantity of something, encompassing all parts or units counted.

Willing to Pay

The maximum amount an individual is prepared to spend to acquire a good or service.