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If the Federal Reserve Is Currently Paying 1% Interest on Bank

question 17

Multiple Choice

If the Federal Reserve is currently paying 1% interest on bank reserves, but then reduces that interest rate to 0.5%, banks may decide to hold ______ reserves, and the money supply may _____.


Definitions:

Belief Perseverance

The phenomenon where individuals stick to their initial beliefs even when confronted with contrasting evidence.

Representativeness Heuristic

A cognitive shortcut that involves judging the likelihood of an event based on how closely it resembles a typical case.

Confirmation Bias

The bias towards finding, deciphering, choosing, and memorizing details that supports one's initial beliefs or assumptions.

Algorithms

are set procedures or formulas for solving a problem, typically by a computer.

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