Question

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?
a.
The Fed continued to purchase and sell only U.S. Treasury bonds when conducting open market operations to control the money supply.
b.
The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession.
c.
The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened.
d.
The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession.

Answer 1

The response of the Federal Reserve to the 2008 recession was the Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession (the correct answer is B).

The Federal Reserve responded to the monetary crisis in 2008 by maintaining stability and expanding the money supply. Including The Federal Reserve's efforts to implement a number of programs designed to support liquidity from financial institutions and improve financial market conditions. As we know, the 2008 financial crisis occurred due to cheap credit and lax lending standards which caused a housing bubble.

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