Discuss the ways in which the Federal Reserve tackled the negative effects of the financial crisis...
Discuss the ways in which the Federal Reserve tackled the negative effects of the financial crisis in 2008-09?
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Homework Answers
The ways in which Federal Reserve tried to mitigate the effects of financial crises were:
Interest Rate Cuts.
Initially, Federal Reserve tried to cut interest rate to mitigate the recession by trying boosting the economy through investment increase.
Quantitative Easing
This led to injection of liquidity in the economy through creation of electronic money. Federal Reserve used this money to buy assets and bonds from commercial banks, thus, injecting money into system through commercial banks.
Forward Guidance.
In order to move economy out of recession, Federal Reserve tried to do communticate that in future interest rate will remain low so that business could invest and consumer expenditure could increase.
These were the steps taken by Federal Reserve to mitigate the effects of Financial Crisis.
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