The First Test of the Federal Reserve as Lender of Last

question 8

Multiple Choice

The first test of the Federal Reserve as lender of last resort occurred with the:

• A)Attack on Pearl Harbor by the Japanese
• B)Widespread failures of Savings and Loans in the 1980's
• C)Introduction of flexible exchange rates in the U.S.in 1971
• D)Stock market crash in 1929

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Definitions:

Ability-to-Pay Principle

A taxation principle that suggests taxes should be levied based on the taxpayer's ability to pay, implying that those with higher incomes should pay more taxes.

Progressive Tax

A tax system where the tax rate increases as the taxable income or wealth increases, meaning higher earners pay a larger percentage of their income than lower earners.

Regressive Tax

A tax system where the tax rate decreases as the amount subject to taxation increases, placing a heavier burden on lower-income earners.

Market Activity

The collective buying and selling of goods and services, including financial transactions, in an economy.