Following the U.S. financial crisis in 2008, some observers assert that the policies of Fed Chairman Greenspan contributed to the crisis. Which of the following is a criticism of Greenspan's policies?
I. The very low interest rates used to fight the 2001 recession were maintained for too long, leading to the real estate bubble.
II. The Fed provided real estate developers with liquidity to encourage property development and offered tax breaks to first-time home buyers, which in turn fueled the real estate bubble.
III. The Fed did not promote appropriate regulations to deal with the new financial instruments that were created in the early 2000s.
A) I and II only.
B) I and III only.
C) II and III only.
D) I, II, and III.

Question

Quizplus · Accepted Answer

Both I and III are criticisms of Greenspan's policies. The very low interest rates used to fight the 2001 recession were maintained for too long, leading to the real estate bubble. Additionally, the Fed did not promote appropriate regulations to deal with the new financial instruments that were created in the early 2000s. While the Fed did provide liquidity to the real estate market and offered tax breaks to first-time home buyers, this is not a significant criticism in the context of the larger financial crisis.