From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009, the huge expansion in the Feds balance sheet and the monetary base did not result in a large increase in monetary supply because

MONETARY POLICY

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009, the huge expansion in the Fed’s balance sheet and the monetary base did not result in a large increase in monetary supply because

A	most of it just flowed into holdings of excess reserve.
B	the Fed also increased the required reserve ratio.
C	the Fed also conducted open market sales.
D	the discount loan decreased.

Explanation:

Detailed explanation-1: -Starting in late 2007, the Fed began responding to rising unemployment with the main tool of traditional monetary policy: interest rate cuts. The way this works is that the Fed boosts the economy by reducing the interest rate that banks pay each other for overnight loans, the federal funds rate.

Detailed explanation-2: -The catalysts for the GFC were falling US house prices and a rising number of borrowers unable to repay their loans. House prices in the United States peaked around mid 2006, coinciding with a rapidly rising supply of newly built houses in some areas.

Detailed explanation-3: -How did the financial crisis of 2007-2009 affect the size and composition of the balance sheet of the Federal Reserve? Between December 2007 and December 2009, the assets on the Federal Reserve’s balance sheet increased by 2.5 times, mostly in the form of securities.

There is 1 question to complete.

ECONOMICS (CBSE/UGC NET)

ECONOMICS

MONETARY POLICY