ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The discount window is available to meet liquidity needs.” In the days that followed, the Fed lowered interest rates and loaned more than $45 billion to financial institutions in order to provide stability to the U.S. economy.

Detailed explanation-2: -By this approach, the immediate impact of the 9/11 attack was to reduce real GDP growth in 2001 by 0.5%, and to increase the unemployment rate by 0.11% (reduce employment by 598, 000 jobs.)

Detailed explanation-3: -The terrorist attacks of September 11, 2001, destroyed facilities in Lower Manhattan, leaving some banks unable to send payments through the Federal Reserve’s Fedwire payments system. As a result, many banks received fewer payments than expected, causing unexpected shortfalls in banks’ liquidity.

Detailed explanation-4: -The Fed responded to the crisis with a four-pronged strategy. First, it flooded the banking sector with liquidity. Second, it invoked emergency powers granted to it during the Great Depression to lend to financial institutions other than banks. Third, it quickly cut the funds rate to zero.

Detailed explanation-5: -The terrorist attack on Sept. 11, 2001 was marked by a sharp plunge in the stock market, causing a $1.4 trillion loss in market value. The first week of trading after the attacks saw the S&P 500 fall more than 14%, while gold and oil rallied.