Why, with the monetary policy tools it had used prior to the financial crisis, could the Fed not control the federal funds rate?

(A) The Fed would have needed to conduct a massive open market purchase of government securities.

(B) Investor and consumer behavior was not conforming to normal patterns.

(C) Using the tools the Fed had available would have disrupted the financial system.

(D) Reserves would have needed to be increased by too large an amount.

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21 March, 14:59

Why, with the monetary policy tools it had used prior to the financial crisis, could the Fed not control the federal funds rate?

(A) The Fed would have needed to conduct a massive open market purchase of government securities.

(B) Investor and consumer behavior was not conforming to normal patterns.

(C) Using the tools the Fed had available would have disrupted the financial system.

(D) Reserves would have needed to be increased by too large an amount.

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Answers (1)

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Elliot Andrews · Answer 1

(C) Using the tools the Fed had available would have disrupted the financial system.

Explanation:

Every time the solution of any problem is not available with the resources we have, rather the available resources might add up to the cost of damage.

In the given case also, this general phenomenon is applicable.

As the Fed had monetary policy tools, which it even used earlier are not good for the problem of financial crisis. That the policies could even turn the situation worse as the country is already facing the crisis, and the policies would not contribute to the well being.