Question

what are 5 government policy responses to the financial crisis of 2008 and explain them briefly.

Answer 1

Financial crisis of 2008 led to rise in unemployment rate which reached 9 % of labor force and output level declined significantly. Government reacted swiftly and responded in following ways:

• Open market operation: Through open market operation, Fed increased money supply. Fed bought securities from open market
• Quantitative easing: it was most successful action followed by the Fed. it was implemented in phased manner. Fed purchased toxic assets and increased liquidity in market. it also increased demand in economy.
• Bailout packages: Government offered huge bailout package to firms who were suffering from liquidity crunch.
• Troubled Assets Relief programme: TARP was signed into law. it was major step by government to deal with crisis.
• Dodd Frank Wall street reform and consumer protection Act: it was major step in infusing confidence of people in financial institutions.