Question

In the aftermath of the 2007 financial crisis, the Fed used several programs to increase liquidity, including ________.

A. setting up the Term Auction Facility

B. purchase of long-term treasury bonds

C. expansion of the discount window

D. lending to investment banks

E. All of these choices are correct.

Answer 1

Correct option is E.
Explanation:

A) In order to increase liquidity in the U.S. credit markets, Fed manages a temporary program (or a policy) which is called as Term Auction Facility.
B) When a central bank purchases long-term treasury bonds, it increases the liquidity (or money supply in the economy).
C) Through discount window policy, Fed lends money to the eligible institutions. This is a short term process and it increases liquidity.
D) Lending to investment banks means the investment banks will have more money which they can use to buy securities, and this increases the liquidity in markets.