The economy suffered a mild recession in 2001.Despite the recession,home sales and durable goods sales remained high.Which of the following is a plausible explanation?
A)The Fed's pursuit of contractionary policy stimulated these markets.
B)The Fed caused a reduction in the federal funds rate to its lowest level in 40 years.
C)Rising inflation encouraged many to invest in the real estate market.
D)Home building and consumer durable purchases are always high during a recession.

Question

Quizplus · Accepted Answer

The Federal Reserve reducing the federal funds rate to its lowest level in 40 years is a plausible explanation because lower interest rates can make borrowing cheaper, encouraging consumers to buy homes and durable goods even during a recession.

The Economy Suffered a Mild Recession in 2001