Why did the Fed expand discount lending in the aftermath of the terrorist attacks in the fall of 2001?
A)It feared that inflation was going to increase.
B)To ensure the smooth operation of banks in the affected areas.
C)It feared the effects on the U.S. economy of rising oil prices.
D)It was attempting to increase the chances that President Bush would be reelected.

Question

Quizplus · Accepted Answer

The Fed expanded discount lending in the aftermath of the terrorist attacks in the fall of 2001 to ensure the smooth operation of banks in the affected areas. The attacks had disrupted the normal functioning of financial markets and increased uncertainty, so providing banks with access to discount loans helped to stabilize the financial system and support economic activity. The other cited options (A, C, D) are not supported by evidence and are therefore incorrect.

Why Did the Fed Expand Discount Lending in the Aftermath