1. Why is it difficult for the fed to prevent recessions by lowering interest rates

A. The Fed can change the rate only once each year.
B. It can take years for local banks to change their rates.
C. The Fed's rate does not affect business loans.
D. It can take businesses years to
make large investment plans.

2. What is one reason commercial banks sometimes borrow money from the Fed?

A. to control the supply of money available to their customers
B. to maintain their reserve requirements
C. to have funds available to lend to other banks
D. to clear their customers' checks
is a sales tax a regressive tax?

3.Why is a sales tax a regressive tax?

A. It is a different amount for low incomes.
B. It is a different amount for all incomes.
C. It is a higher percentage of income if you earn more money.
D. It is a higher percentage of income if you earn less money

1. B
2. A
3. D

1. The correct answer is B. It can take years for local banks to change their rates. The Federal Reserve can lower interest rates to stimulate borrowing and spending, but it takes time for these changes to be implemented by banks at the local level. By the time banks lower their rates, the economy may already be in a recession or the need for lower rates may no longer be as critical.

2. The correct answer is A. to control the supply of money available to their customers. Commercial banks sometimes borrow money from the Federal Reserve to ensure they have enough funds to meet their customers' withdrawal demands and to manage the overall supply of money in the economy. This borrowing helps banks maintain stability and liquidity.

3. The correct answer is D. It is a higher percentage of income if you earn less money. A sales tax is considered regressive because it takes a higher percentage of income from lower-income individuals compared to higher-income individuals. Since lower-income individuals tend to spend a larger portion of their income on taxable goods and services, a sales tax affects them disproportionately. Higher-income individuals can afford to save more of their income, which is not subject to the tax.

To get the answer to question 1, we need to understand the various factors involved in the Federal Reserve's ability to prevent recessions by lowering interest rates. Let's break down the options:

A. The Fed can change the rate only once each year: This statement is not accurate. The Federal Reserve has the ability to adjust interest rates more frequently than once a year. They regularly hold meetings to assess economic conditions and decide whether to change interest rates.

B. It can take years for local banks to change their rates: This statement is a possibility. When the Federal Reserve lowers interest rates, it can take time for local banks to adjust their own interest rates. The transmission of changes in the Fed's rate to lending rates for consumers and businesses can be a slow process.

C. The Fed's rate does not affect business loans: This statement is not accurate. The Federal Reserve's interest rate decisions can impact business loans. When the Fed lowers interest rates, it becomes cheaper for businesses to borrow money, encouraging investment and potentially stimulating the economy.

D. It can take businesses years to make large investment plans: This statement may be a factor but is not the primary reason. While businesses may take their time to make large investment decisions, the primary challenge for the Federal Reserve in preventing recessions through interest rate changes lies in the transmission of those rate changes to the broader economy.

Therefore, the correct answer to question 1 is B. It can take years for local banks to change their rates.

To get the answer to question 2, let's assess the options:

A. to control the supply of money available to their customers: This is a valid reason. Commercial banks may borrow money from the Federal Reserve to manage the amount of money in circulation and maintain stability in the economy.

B. to maintain their reserve requirements: This is a valid reason. Commercial banks have reserve requirements set by the Federal Reserve, and borrowing from the Fed can help them meet those requirements.

C. to have funds available to lend to other banks: While this can be a possible reason, it is not the primary reason for commercial banks borrowing from the Federal Reserve.

D. to clear their customers' checks: This is not a valid reason. Commercial banks do not typically borrow from the Fed to clear their customers' checks.

Therefore, the correct answer to question 2 is A. to control the supply of money available to their customers.

To understand why a sales tax is considered regressive (question 3), we need to consider the options:

A. It is a different amount for low incomes: This statement is not accurate. Sales tax is generally the same amount for everyone, regardless of income.

B. It is a different amount for all incomes: This statement is not accurate. Sales tax is typically a fixed percentage of the purchase price, rather than a different amount for each income level.

C. It is a higher percentage of income if you earn more money: This statement is not accurate. Sales tax is generally a fixed percentage of the purchase price and does not vary based on income.

D. It is a higher percentage of income if you earn less money: This statement is accurate. Sales tax is considered regressive because it takes a higher percentage of income from individuals with lower incomes compared to those with higher incomes. The same fixed percentage of sales tax represents a larger portion of a lower-income individual's income compared to a higher-income individual.

Therefore, the correct answer to question 3 is D. It is a higher percentage of income if you earn less money.