The Financial Crisis of 2008 Resulted in Extreme Policy Measures

question 4

Multiple Choice

The financial crisis of 2008 resulted in extreme policy measures by the Federal Reserve. Which of the following is the BEST characterization of its policy?

• A) It was a complete reversion to the idea that eventually the economy is self-correcting and the best policy is to wait it out.
• B) It was a massive injection of liquidity to banks and major purchases of U.S. government securities, which resulted in a near-zero federal funds rate.
• C) It was a moderate approach that limited monetary growth to the rate of growth of real GDP.
• D) It was based on a realization that the Federal Reserve was ineffective in the face of such a crisis.

---

Definitions:

Attributions

Explanations that individuals create for the causes of their own and others' behaviors and events.

Fundamental Attribution Error

The tendency to overemphasize personality-based explanations for behaviors observed in others while underestimating the influence of situational factors.

Self-serving Bias

A common tendency to attribute one's successes to personal characteristics and failures to external factors.

Just-world Hypothesis

The cognitive bias that assumes that actions always yield morally fair and fitting consequences, essentially that the world is just.