Consider the required article Meltdown Averted Using textual

Consider the required article “Meltdown Averted.” Using textual evidence, briefly describe the monetary policy tools the Federal Reserve used during that time period to mitigate the decline in aggregate output and reduce unemployment. Answer in 4- 6 sentences.

Solution

During the Great Financial Crisis of 2007, the Fed cut the interest rates in the economy. However, the interest rates cannot fall below 0%. Once the zero lower bound was hit, the Fed resorted to unconventional tools like Quantitative Easing. Quantitative Easing involves purchase of long term assets that will flatten the long term interest and increase the money supply. With a decline in interest rates, the economic activity picks up and improves the output and employment.