The financial crisis of 2008 resulted in extreme policy measures by the Federal Reserve. Which of the following is the BEST characterization of its policy?
A) It was a complete reversion to the idea that eventually the economy is self-correcting and the best policy is to wait it out.
B) It was a massive injection of liquidity to banks and major purchases of U.S. government securities, which resulted in a near-zero federal funds rate.
C) It was a moderate approach that limited monetary growth to the rate of growth of real GDP.
D) It was based on a realization that the Federal Reserve was ineffective in the face of such a crisis.

Question

Quizplus · Accepted Answer

The correct answer is B because the Federal Reserve responded to the financial crisis of 2008 with measures such as injecting massive liquidity to banks and major purchases of U.S. government securities. These actions resulted in a near-zero federal funds rate. This policy was aimed at stabilizing the financial system and promoting economic growth.  The other options are not accurate because they do not reflect the actions taken by the Federal Reserve during the financial crisis.

The Financial Crisis of 2008 Resulted in Extreme Policy Measures