Lower interest rates encouraged borrowing. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%. This was done to soften the effects of the collapse of the dot-com bubble and the September 2001 terrorist attacks, as well as to combat a perceived risk of deflation. As early as 2002 it was apparent that credit was fueling housing instead of business investment as some economists went so far as to advocate that the Fed "needs to create a housing bubble to replace the Nasdaq bubble". Moreover, empirical studies using data from advanced countries show that excessive credit growth contributed greatly to the severity of the crisis. COUNT 5
QSN1 Was was the federal funds rate target lowered to by the Federal Reserve in 2003? ANS1 1.0% QSN2 What is one reason the Federal Reserve lowered the federal funds rate target to 1.0% in 2003? ANS2 to combat a perceived risk of deflation QSN3 In the early 2000s, what type bubble did some economists believe the Fed needed to create to replace the Nasdaq bubble? ANS3 a housing bubble QSN4 What contributed greatly to the severity of the financial crisis of 2007? ANS4 excessive credit growth QSN5 What encouraged borrowing from 2000 to 2003? ANS5 Lower interest rates