What are the main reasons for the Federal Reserve's Balance Sheet to increase from about $1...
What are the main reasons for the Federal Reserve's Balance Sheet to increase from about $1 Trillion prior to the Great Recession to over $4 Trillion today and how did they achieve it?
Homework Answers
The main reasons why balance sheet of federal Reserve quadrupled
are:
1. Quantitative Easing: In this process Federal reserve injected
liquidity into the economy and banking systems by buying long term
treasury securities at regular intervals. This was
achieved by printing currency and hence inflating the
balance sheet with more liabilities.
2. Purchase of mortgage based securities: The federal reserve could not revive the economy during recession merely by rate cuts hence it had to buy certain securities like mortgage based securities to fuel the economy, This was done by printing currency and using their own cash reserves.
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