Question

I need a response to my peers discussion post

The measures taken by Fed were effective in ending recession in the economy and stimulating recovery in a timely fashion. The economy almost reached potential level and unemployment rate reached its natural rate and hence the economy recovered from the recession.

The 2008 financial crisis in the US forced the fed to adopt certain measures from time to time to protect the economy from falling into a deep recession. One of the measures was the purchasing of mortgage backed securities. The purchasing of these securities was a part of the quantitative easing (QE) method adopted by the Fed to increase the supply of money in the economy and reduce mortgage interest rates. These securities were backed by government sponsored enterprises-Fannie Mae and Freddie Mae. The strong backing of securities by government agencies led to an increase in the support to housing markets and an increase in demand for houses by increasing the purchasing power of the consumers.

In the housing market the Fed's purchase of mortgage backed securities led to increase in liquidity in the housing market in which no transaction was taking up place earlier. Inflation might increase with the increase in the monetary supply. Since inflation was very low during the time of recession, thus, increase in the level of money supply led to increase in the price level from negative to positive zone. Thus, inflation occurred but was within the Fed's target.WC: 235

                                                                                   References

The National Bureau of Economic Research. (n.d.). Retrieved from http://nber.org/

U.S. Bureau of Labor Statistics. (n.d.). Retrieved from https://www.bls.gov/

Board of Governors of the Federal Reserve System. (n.d.). Retrieved from https://www.federalreserve.gov/

Weinberg, J. (n.d.). The Great Recession and its Aftermath. Retrieved from https://www.federalreservehistory.org/essays/great_recession_and_its_aftermath

Answer 1

I would agree with the post to quite an extent because the Federal reserve played a very important role during the 2008 recession period when USA experienced a huge financial crisis and it was the federal reserve who maintained the cash flow by selling and purchasing government securities, which ensure that the nation can actually fight with this phase of recession accordingly. It also used the quantitative easing method as part of this phase which ensure that the supply of money in the economy is increased and the interest rate of certain elements is decreased in order to value the expenses of the individuals in order to ensure the basic amenities to sustain life. The government supported finances and investments are important in this aspect when the organizations purchase the securities in order to increase the cash in the economy and sell these securities later in future in order to maintain the cash flow once the recession is over.