In response to the recession of 2008-2009, the Fed doubled its asset holdings from $925 billion at mid-year 2008 to more than $2 trillion by mid-year 2009. This policy
A) reduced the reserves available to banks, leading to a larger money supply.
B) reduced the reserves available to banks, causing the money supply to decline.
C) increased the reserves available to banks, leading to a larger money supply.
D) increased the reserves available to banks, causing the money supply to decline.

Question

Quizplus · Accepted Answer

By doubling its asset holdings, the Fed increased the reserves available to banks, which in turn led to a larger money supply. This is because the banks were able to lend out a greater amount of money, which increases the overall money supply in the economy.

In Response to the Recession of 2008-2009, the Fed Doubled