Final answer:
Large-scale asset purchases refer to the Federal Reserve's purchase of assets off banks' balance sheets, injecting money into the banking system and stimulating the economy. This unconventional policy tool, known as quantitative easing (QE), is used during periods of financial distress to provide liquidity and support economic growth.
Step-by-step explanation:
In the context of monetary policy, large-scale asset purchases refer to the Federal Reserve's purchase of both traditional and nontraditional assets off banks' balance sheets. This action injects money into the banking system, increasing the funds available for lending to businesses and consumers. It also lowers short-term interest rates and stimulates the economy. For example, during the financial crisis, the Fed purchased mortgage-backed securities to stabilize the financial system and boost long-term interest rates. These unconventional policy tools, often referred to as quantitative easing (QE), are used to provide liquidity and support economic growth during periods of financial distress.