Final answer:
The Fed's balance sheet denotes its assets and liabilities, encompassing holdings like government securities. It expanded and evolved during the financial crisis with the acquisition of nontraditional assets to stabilize the market and lower interest rates.
Step-by-step explanation:
The Fed balance sheet is a statement listing the assets and liabilities of the Federal Reserve System. Details of the Fed's balance sheet are disclosed by the Fed in a weekly report called "Factors Affecting Reserve Balances." The Fed's balance sheet during normal times primarily consists of government securities and various assets the bank acquires to manage monetary policy and promote financial stability. During the financial crisis, the Fed's balance sheet expanded significantly as it purchased both traditional and nontraditional assets off banks' balance sheets.
This was done to inject money into the banking system and increase the funds available for lending to businesses and consumers. Furthermore, short-term interest rates were reduced to nearly zero percent to stimulate the economy. The measures taken by the Fed, along with legislative acts such as the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act, aimed to stabilize the financial market and support economic recovery.