Question

1. During the Great Recession, the Fed relied on each of the following tools to influence the economy EXCEPT:

a. reverse repurchase agreements.

b. quantitative easing.

c. paying interest on reserves.

d. open market operations.

2. Quantitative easing involves the Fed swapping:

a. money for assets other than T-bills.

b. T-bills for assets other than T-bills.

c. T-bills for different T-bills.

d. money for T-bills.

3. In conducting quantitative easing, the Fed may decide to purchase mortgage securities in order to do all of the following EXCEPT:

a. reduce interest rates on home purchases.

b. influence average home prices.

c. increase the amount of bank reserves.

d. affect long-term interest rates.

4. Since 2008, excess reserves have increased from:

a. 2 billion to almost 3 trillion.

b. 2 billion to almost 3 billion.

c. 2 trillion to almost 3 trillion.

d. 3 billion to almost 2 trillion.

5. An increase in the rate of interest paid on reserves would be an example of:

a. expansionary policy that increases the demand for reserves and raises short-term interest rates.

b. contractionary policy that reduces the supply of reserves and raises short-term interest rates.

c. contractionary policy that increases the demand for reserves and raises short-term interest rates.

d. expansionary policy that increases the demand for reserves and reduces short-term interest rates.

6. Why didn't the huge increase in the money supply that resulted from quantitative easing lead to increases in inflation?

a. Because huge increases in the money supply generally lead to deflation, not inflation.

b. Because quantitative easing targets nominal GDP growth rates, not inflation rates.

c. Because quantitative easing increased the monetary base, but not broader definitions of money like M1 and M2.

d. Because the federal government offset the inflationary pressure by drastically decreasing spending and raising taxes.

7. In a "reverse repurchase agreement," the Fed:

a. takes on assets besides T-Bills in exchange for T-Bills.

b. takes on reserves in exchange for T-Bills.

c. takes on T-Bills in exchange for reserves.

d. takes on T-Bills in exchange for other assets besides T-Bills.

Answer 1

During the Great Recession, the Fed used several tools to influence the economy, including reverse repurchase agreements, quantitative easing, paying interest on reserves, and open market operations. Quantitative easing involves the Fed swapping money for assets other than T-bills, such as long-term Treasury bonds. While purchasing mortgage securities can have various impacts, it does not directly affect long-term interest rates. Excess reserves have increased significantly since 2008, from 2 billion to almost 3 trillion. An increase in the rate of interest paid on reserves is an expansionary policy that raises short-term interest rates. The increase in the money supply resulting from quantitative easing did not lead to inflation due to its impact on the monetary base and the federal government's fiscal policies. In a reverse repurchase agreement, the Fed takes on T-Bills in exchange for other assets besides T-Bills.

Step-by-step explanation:

The answer to the first question is a. reverse repurchase agreements. During the Great Recession, the Federal Reserve used several tools to influence the economy, including quantitative easing, paying interest on reserves, and open market operations. However, reverse repurchase agreements were not one of the tools used.

Quantitative easing, the answer to the second question, involves the Fed swapping money for assets other than T-bills. This allows the central bank to make credit more available and stimulate the economy.

In conducting quantitative easing, the Fed may decide to purchase mortgage securities to achieve various impacts, except for affecting long-term interest rates. Purchasing mortgage securities can reduce interest rates on home purchases, influence average home prices, and increase bank reserves.

Since 2008, excess reserves have increased from 2 billion to almost 3 trillion. This increase in excess reserves is a result of the quantitative easing policies implemented by the Fed.

An increase in the rate of interest paid on reserves would be an example of expansionary policy that increases the demand for reserves and raises short-term interest rates. This policy aims to stimulate lending and economic activity.

The reason the increase in the money supply resulting from quantitative easing did not lead to increases in inflation is because quantitative easing increased the monetary base, but not broader definitions of money like M1 and M2. It targeted nominal GDP growth rates rather than inflation rates. The federal government's fiscal policies, such as decreasing spending and raising taxes, could also offset inflationary pressures.

In a 'reverse repurchase agreement,' the Fed takes on T-Bills in exchange for other assets besides T-Bills. Reverse repurchase agreements involve the sale of securities with an agreement to repurchase them at a later date.

Answer 2

The Fed did not rely on reverse repurchase agreements during the Great Recession as a tool to influence the economy.

Quantitative easing involves the Fed swapping money for assets other than T-bills to stimulate the economy.

The Fed may purchase mortgage securities during quantitative easing to influence average home prices.

Since 2008, excess reserves have surged from 2 billion to almost 3 trillion.

An increase in the interest rate paid on reserves is an expansionary policy that increases the demand for reserves, raising short-term interest rates.

The huge increase in the money supply from quantitative easing didn't lead to inflation because it increased the monetary base, not broader money measures like M1 and M2.

In a reverse repurchase agreement, the Fed takes on reserves in exchange for T-Bills.