Answer to Question #236046 in Economics for Jamilah

Question

If you were sitting as Federal Reserve chairman, what measures would you have taken to avoid the crisis? [30 Marks]

Answer 1

The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations.

Federal Reserve may purchase federal agency debt and mortgage-backed securities to reduce mortgage interest rates, making home purchases more affordable. It may also develop new rules for credit cards, mortgages, and other financial products to avoid the financial crisis.