Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions.
-To eradicate deflation during the Great Depression,the Fed __________ and __________.
A)raised the real interest rate;lowered the inflation rate
B)bought subprime loans from banks;lowered nominal interest rates
C)lowered the nominal interest rate;abandoned the gold standard
D)temporarily closed;operated under the Treasury Department
E)printed money;borrowed heavily from the United Kingdom

Question

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. 
-To eradicate deflation during the Great Depression,the Fed __________ and __________.
A)raised the real interest rate;lowered the inflation rate 
B)bought subprime loans from banks;lowered nominal interest rates 
C)lowered the nominal interest rate;abandoned the gold standard 
D)temporarily closed;operated under the Treasury Department 
E)printed money;borrowed heavily from the United Kingdom

Quizplus · Accepted Answer

During the Great Depression, the Fed lowered the nominal interest rate and abandoned the gold standard in order to eradicate deflation. Lowering the nominal interest rate made borrowing cheaper and encouraged spending, while abandoning the gold standard allowed the Fed to adjust the money supply more easily. These actions were part of the Fed's efforts to stimulate the economy and end the deflationary spiral.