Which of the following prevented the Fed from reducing long-term real interest rates during the Financial Crisis of 2007-2009?
A)an increase in expected inflation
B)an increase in the risk premium
C)the collapse in the housing market
D)the failure of the federal funds rate to respond to monetary policy

Question

Quizplus · Accepted Answer

An increase in the risk premium during the financial crisis led to higher borrowing costs and prevented the Fed from effectively reducing long-term real interest rates, despite their efforts to lower nominal rates.

Which of the Following Prevented the Fed from Reducing Long-Term