In an effort to address the troubled economy, ..."For the ninth time in just over a year, the Federal Re is expected to cut interest rates, quite possibly its last reduction in this downturn." Rates have not this low "... since 2003, when the economy was growing at a snail's pace. "
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The Fed's rates cuts will initially impact _ and eventually _ _.
A) the money supply; bank reserves
B) investment; the real interest rate
C) bank reserves; government spending
D) bank reserves; real GDP

Question

Quizplus · Accepted Answer

The Fed's interest rate cuts will initially impact bank reserves, as it makes borrowing cheaper for banks and encourages them to increase their reserves. Eventually, this will also impact real GDP, as businesses and consumers are more likely to borrow money and spend it, stimulating economic growth. Therefore, the best choice is D, as it correctly identifies both the initial and eventual impacts of the interest rate cuts.

In an Effort to Address the Troubled Economy