Question

Identify the actions taken by the Fed to assist banks during the financial crisis of 2008. Check all that apply.

The Fed implemented new fiscal policy measures to encourage consumer spending.
The Fed placed a cap on the cash that individuals could receive from banks at one time.
The Fed bought securities to increase the money supply.
The Fed lowered interest rates, hoping to increase available credit.
The Fed carried out open market operations to stimulate growth.

Answer 1

Correct answers:
- The Fed bought securities to increase the money supply.
- The Fed lowered interest rates, hoping to increase available credit.
- The Fed carried out open market operations to stimulate growth.

Brief notes:
- The Fed conducted large-scale asset purchases (agency MBS and Treasuries), implemented aggressive rate cuts (to near zero by end of 2008), and used open-market and repo operations to add liquidity.
- The other two choices describe fiscal policy (not the Fed) or actions (withdrawal caps) that the Fed did not impose as a general policy.