Which of the Following Is TRUE of the Federal Reserve's

question 214

Multiple Choice

Which of the following is TRUE of the Federal Reserve's response to the banking crises of the 1930s and 2008?

• A)In both crises, the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks.
• B)In both crises, the Fed failed to use its power to act as a lender of last resort or to guarantee liabilities of troubled banks.
• C)In the 1930s the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in 2008.
• D)In 2008 the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in the 1930s.

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Definitions:

Annually Compounded

An investment or interest calculation method where the interest earned over the year is added to the principal at year-end, affecting the amount earned the following year.

Nominal Rate

The nominal rate refers to the interest rate stated on a loan or investment agreement before adjusting for inflation or other factors.

Annually Compounded

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, once per year.

Nominal Interest Rate

The interest rate before adjustments for inflation or other factors that affect the real value of money.