The "quantitative easing" policies of the Fed during, and following, the financial crisis of 2008-2009,
A) expanded the reserves available to the banking system, leading to a rapid increase in the M1 money supply as banks used the reserves to extend additional loans.
B) reduced the reserves available to the banking system, leading to a sharp reduction in outstanding loans and a decline in the M1 money supply.
C) expanded the reserves available to the banking system, but the M1 money supply increased slowly because the banks enlarged their excess reserves.
D) reduced the reserves available to the banking system, leading to a substantial increase in outstanding loans and the M1 money supply.

Question

Quizplus · Accepted Answer

The Fed's quantitative easing policies expanded the reserves available to the banking system, but the M1 money supply increased slowly because the banks enlarged their excess reserves. This means that banks were not using the additional reserves to extend additional loans, leading to a slow increase in the M1 money supply.

The "Quantitative Easing" Policies of the Fed During, and Following