AICPA Exam CPA-Business Topic 2 Question 79 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 79
Topic #: 2

[All CPA-Business Questions]

To address the problem of a recession, the Federal Reserve Bank most likely would take which of the following actions?

ALower the discount rate it charges to banks for loans.

BSell U.S. government bonds in open-market transactions.

CIncrease the federal funds rate charged by banks when they borrow from one another.

DIncrease the level of funds a bank is legally required to hold in reserve.

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. Return on investment equals net income divided by average invested capital:

Choices 'a', 'b', and 'd' are incorrect, per the above calculation.

by Chantell at Dec 22, 2023, 12:59 AM

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Jules

5 days ago

Hmm, the Fed lowering rates to address a recession? What is this, the 1980s?

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Bettina

22 days ago

I was going to say C) Increase the federal funds rate, but that would be counterproductive in a recession. Gotta love these tricky Fed questions!

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Katy

2 days ago

A) Lower the discount rate it charges to banks for loans.

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Paris

24 days ago

D) Increasing the reserve requirement is a way to tighten the money supply, but I don't think that's the best approach during a recession.

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Valentin

26 days ago

But wouldn't selling bonds decrease the money supply and potentially worsen the recession?

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Malika

27 days ago

I disagree, I believe the answer is B) Sell U.S. government bonds.

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Valentin

28 days ago

I think the answer is A) Lower the discount rate.

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Fernanda

1 months ago

B) Selling U.S. government bonds seems like the right move to me. That would reduce the money supply and help curb inflation.

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Ma

3 days ago

A) Lowering the discount rate could also stimulate borrowing and spending, which could help boost the economy.

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Marisha

1 months ago

That's a good point, selling bonds could also help stimulate the economy.

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Sylvie

1 months ago

I disagree, I believe they would sell U.S. government bonds in open-market transactions to address the recession.

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Marisha

1 months ago

I think the Federal Reserve Bank would lower the discount rate to help with a recession.

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Jaclyn

1 months ago

I think the answer is A) Lower the discount rate. The Federal Reserve typically lowers interest rates to stimulate the economy during a recession.

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Brynn

8 days ago

Increasing the federal funds rate might have the opposite effect.

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Socorro

16 days ago

But selling U.S. government bonds could also be a way to address a recession.

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Twana

22 days ago

I agree, lowering the discount rate can help stimulate the economy.

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