After a Banking Crisis, When the Federal Reserve Buys Government

question 9

Multiple Choice

After a banking crisis, when the Federal Reserve buys government securities to increase the money supply and decrease interest rates:

• A)consumers and businesses may not respond by increasing their spending because of debt overhang.
• B)consumers and businesses usually borrow too much and spend too much, causing inflation.
• C)banks may fear runs, so they hold on to excess reserves rather than lending them to consumers and businesses.
• D)consumers and businesses may not respond because the recession has increased the value of their assets so much that they don't need to borrow money to buy more.

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Definitions:

Stimulus Generalization

The psychological principle where a conditioned response is triggered by stimuli similar to the original associated stimulus.

Behavioral Learning

A theory that explains human learning and behavior through the association between stimuli and responses, emphasizing the role of reinforcement.

Cognitive Learning

Refers to the mental process of acquiring knowledge and understanding through thought, experience, and the senses, emphasizing the role of the brain in processing information.

Behavioral Learning

A theory that proposes that learning is a process of adapting behavior based on experiences and interactions.