Many economists argue that the Fed contributed to the housing bubble by:
A)passing laws that allowed financial institutions to create credit default swaps.
B)paying interest on bank reserves.
C)keeping the Fed funds rate lower than what the Taylor rule predicts.
D)buying mortgage-backed securities for foreclosed homes.

Question

Quizplus · Accepted Answer

The Federal Reserve contributed to the housing bubble by keeping the Fed funds rate lower than what the Taylor rule predicts. This made borrowing cheaper, encouraging more investment in housing and contributing to the bubble.

Many Economists Argue That the Fed Contributed to the Housing