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In response to the financial crisis following the housing bust, the Federal Reserve lowered short-term interest rates to what range, in an effort to loosen up credit throughout the financial system?
ABetween 5% and 6%
BBetween 2% and 3%
CBetween 0% and 0.25%
DBetween 8% and 10%
Answer & Solution
Correct answer: C. Between 0% and 0.25%
1. Monetary policy was one of the two main tools used to respond to the housing bust.
2. The Federal Reserve pushed short-term interest rates all the way down to between 0 percent and 0.25 percent.
3. Lower interest rates are meant to encourage borrowing and stimulate spending, pushing AD back to the right.
4. The other ranges listed are far above the near-zero rates actually reported.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.6 | Keynes’ Law and Say’s Law in the AD/AS Model_
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