In an effort to address the troubled economy, ..."For the ninth time in just over a year, the Federal Reserve is expected to cut interest rates, quite possibly its last reduction in this downturn." Rates have not been this low "... since 2003, when the economy was growing at a snail's pace." www.csmonitor.com, 10/28/2008
These rate cuts are designed to
A) decrease the real long-term interest rate and increase real GDP.
B) increase the exchange rate and decrease government spending.
C) increase bank reserves and the exchange rate.
D) decrease the exchange rate and investment.

Question

Quizplus · Accepted Answer

Decreasing the real long-term interest rate makes borrowing cheaper, which can stimulate investment and consumption, leading to an increase in real GDP.

In an Effort to Address the Troubled Economy