Question

What was true of the Fed during both the era of macroprudential policy and the Paycheck Protection Program?

Group of answer choices The direction of Fed policy was hawkish.
The Fed abandoned open market operations.
The Fed increased reserves in the banking system for reasons other than lowering the federal funds rate.
The Fed used reserves to change interest rates so that investment spending would be at a desirable level.
The Fed was implementing Friedman's Monetarist Rule for growth of the M1.

Answer 1

The Fed increased reserves in the banking system during both the macroprudential policy era and the PPP for reasons beyond lowering the federal funds rate.

This approach was part of unconventional monetary policy measures to stimulate the economy and support financial stability during economic downturns caused by the Great Recession and the COVID-19 pandemic.

Step-by-step explanation:

The question asks what was true of the Federal Reserve (Fed) during both the era of macroprudential policy and the Paycheck Protection Program (PPP).

The correct statement is that the Fed increased reserves in the banking system for reasons other than lowering the federal funds rate.

During the financial crisis and the recession caused by the COVID-19 pandemic, the Federal Reserve used several unconventional monetary policy tools to support the economy.

This included purchasing longer-term securities to put downward pressure on longer-term interest rates and providing liquidity to the financial system.

In response to economic downturns and constrained fiscal policy, the Federal Reserve adjusted its traditional approach to monetary policy by implementing measures that went beyond simply targeting the federal funds rate.

It aimed to facilitate borrowing, stimulate the economy, and ensure that the banking system had sufficient reserves. During this time, it did not follow Friedman's Monetarist Rule for the growth of M1, which is a specific strategy of controlling money supply growth at a constant rate.