Solved

When the Federal Reserve Was Created in Response to the Panic

Question 1

Multiple Choice

When the Federal Reserve was created in response to the Panic of 1907, it operated under a doctrine meant to correct the previous problems that led to the panic. Which of these statements best names and describes that doctrine?

A) The gold standard doctrine meant that central banks would only lend money to commercial banks if the commercial banks had gold as collateral.
B) The real bills doctrine meant that central banks should lend money to commercial banks with collateral only if those banks, in turn, would support "real" but not speculative economic activity.
C) The real bills doctrine meant that central banks should lend money to commercial banks when the commercial banks had paper bills as collateral.
D) The gold standard doctrine meant that commercial banks would have little incentive to engage in speculative activities.

Correct Answer: