Question

Monetary Policy: The Federal Reser times.
Finally, new legislation from Congress, especially the Dodd-Frank Act of 2010, created new and special regulations for large financial institutions. Not only were commercial banks required to maintain higher levels of capital, but the oversight power of the Federal Reserve was enhanced.
There were many other efforts by the Federal Reserve and other institutions to get the Great Recession under control. Officially, the recession ended in June 2009, but the effects lingered for many years afterward. No one organization or business was given blame, but hopefully enough of them learned how to avoid a reoccurrence.
What was the Fed’s response to the 2008 financial crisis? Choose three correct answers.
Responses

They gave financial assistance to homeowners.
They gave financial assistance to homeowners.

They gave money to the banks.
They gave money to the banks.

They encouraged government spending.
They encouraged government spending.

They bought securities to lower mortgage rates.
They bought securities to lower mortgage rates.

They lowered interest rates.

Answer 1

Correct answers (three):

- They gave money to the banks. — The Fed provided large-scale liquidity and emergency loans to banks and other financial institutions (discount window, TARP-related liquidity facilities, and emergency lending programs).
- They bought securities to lower mortgage rates. — The Fed conducted large-scale asset purchases (QE), including Treasuries and mortgage-backed securities, to push down long-term and mortgage rates.
- They lowered interest rates. — The Fed cut the federal funds rate to near zero to stimulate borrowing and spending.

Not correct: the Fed did not directly give financial assistance to homeowners (that was mainly fiscal programs run by Treasury/other agencies), and “encouraged government spending” is a fiscal decision outside the Fed’s direct role.