The Federal Reserve used two unconventional policies to stimulate the economy during the 2007-2009 recession: (1)...

The Federal Reserve used two unconventional policies to stimulate the economy during the 2007-2009 recession: (1) Quantitative Easing and (2) Forward Guidance. Briefly explain these policies and particularly, highlight how these policies worked and explain the channels (transmission mechanisms) through which these policies helped to stimulate the economy.

Expert Solution

1.quantitative easing was done through cutting of a lot of interest rates which is one of the tool of the monetary policy of the Federal Reserve.

Federal Reserve aggressively cut the interest to the range of 0% in order to stimulate the demand into the economy and it also done a lot of bailout programs along with mergers and acquisitions and it also provided open market operations which is another tool of monetary policy in order to stimulate the economy which was facing the great depression.

2.Forward guidance was another tool which was used by federal reserve in order to provide an expectation of the economic progress in coming quarters in order to proactively manage the events and provide the market participants an idea about the overall economic trajectory, so federal reserve in order to proactively manage the economy introduced forward guidance into its policy.

Quantitative easing helped the economy to stabilize from the shock of depression and forward guidance also help a lot of industries to restabilize themselves along with the economic progress as there was complete management from the Fred and there was a complete assistance from the Federal Reserve too .

Quantitative easing was done through interest rate cuts, open market operations and providing of the emergency funding to the various banks.

forward guidance was provided through its monetary policy minutes and It helped to stabilize the economy proactively

jeff jeffy answered 1 year ago

During the 2007-2009 recession, the Federal Reserve Bank loaned $85 billion to AIG to prevent the...

During the 2007-2009 recession, the Federal Reserve Bank loaned $85 billion to AIG to prevent the large insurance company from filing for bankruptcy. Lehman Brothers filed for bankruptcy during the same week and did not receive any government assistance. The Federal government also insured loans to General Motors and Chrysler. In July, 2008, 5644 companies went bankrupt in the United States. That represented an 80% increase from the previous year. Should the federal government bail out some companies experiencing financial...

In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the...

In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the federal funds rate to about 0 percent, but still wanted to stimulate the economy more. The inflation rate in 2009 was about –1%, but households’ and businesses’ inflation expectations for the upcoming year were higher and positive, about 1.5%. a) First, do households’ and businesses’ investment demand depend on the ex ante or ex post real interest rate? Briefly explain why. b) Draw an...

The Federal Reserve opened various liquidity facilities to support commercial paper/money markets during the 2007-2009 recession....

The Federal Reserve opened various liquidity facilities to support commercial paper/money markets during the 2007-2009 recession. What was the rationale behind it? Discuss one such liquidity facility and explain how it may have helped to stabilize the credit markets.

During 2007-2009, the global economy experienced a severe recession. To deal with recessionary gaps in their...

During 2007-2009, the global economy experienced a severe recession. To deal with recessionary gaps in their economies, many countries implemented expansionary fiscal policies to increase aggregate expenditures. Consider the following hypothetical responses (the actual policies were different in each country). In 2009, the government of the United States introduced a $675 billion stimulus package - additional government expenditures with no changes to the tax system. In Canada, the tax rate was reduced from 33 percent of GDP to 30 percent...

2. How did the Federal Reserve’s actions during the Great Recession in 2007–2009 in response to...

2. How did the Federal Reserve’s actions during the Great Recession in 2007–2009 in response to the financial crisis affect its balance sheet? \

What is the Bank Regulations during 2007-2009 ( Great Recession ) ?

What is the Bank Regulations during 2007-2009 ( Great Recession ) ?GIVE DEFINITIONS ABOUT ALL OF THESE TERMS:TARP; HERA; Federal Housing Finance; Regulatory Reform Act of 2008; HOPE for homeowners act of 2008; SAFE Secure and Fair Enforcement for Mortgage Licesing Act of 2008; Forecosure Prevention Act of 2008 and FHA Modernization 2008; Emergency Economic Stabilization Act of 2008; Helping Families Ave Their Homes Act of 2008.

1) In the Great Recession of 2008 -2009, the Federal Reserve resorted to quantitative easing because......

1) In the Great Recession of 2008 -2009, the Federal Reserve resorted to quantitative easing because... Select the correct answer below: a) because it has better results than slashing the federal funds rate b) the interest rates were already down to 0% and the economy was still in deep recession. c) increasing the interest rates did not help the economy d) the unemployment rate was finally starting to decline in 2009 2) Suppose that the economy is producing above the...

How does the Federal Reserve stimulate the economy? When faced between continued stimulus to stimulate the...

How does the Federal Reserve stimulate the economy? When faced between continued stimulus to stimulate the economy and the potential inflationary pressure of rising oil prices, what can the Fed do and what do you think the Fed should do?

After the Financial Crisis of 2007-2009, the Federal Reserve dropped the Federal Funds rate to 0.25%...

After the Financial Crisis of 2007-2009, the Federal Reserve dropped the Federal Funds rate to 0.25% until late 2015. Between December 2015 and December 2018, the Fed steadily increased that rate to 2.5%. Provide your opinion on how banks should react to the Federal reserve expectations for interest rates in 2019.

what caused the Recession 2007-2009

Question