In late 2007, the Fed began a series of cuts in the federal funds rate.Because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was
A) to raise the price of the dollar in the foreign exchange market.
B) to avoid a recession.
C) to encourage households to save more money.
D) to reduce the natural unemployment rate.
E) to increase the real interest rate.

Question

Quizplus · Accepted Answer

The most likely reason for the interest rate cuts was to avoid a recession, as the Fed typically lowers interest rates during economic downturns to encourage more borrowing and spending, which stimulates the economy. The other options (A, C, D, and E) are not supported by the information given and do not align with typical Fed policy during this type of economic situation.

In Late 2007, the Fed Began a Series of Cuts