During the Financial Crisis of 2008-2010, the Fed Increased Its

question 65

Multiple Choice

During the financial crisis of 2008-2010, the Fed increased its purchases of securities and extended more loans, which caused the monetary base to

• A) increase rapidly, but the  M1 money supply declined because the banks loaned out most of the additional reserves to businesses.
• B) fall, but the M1 money supply still expanded rapidly because the banks increased their loans to businesses.
• C) increase rapidly, but the M1 money supply expanded at a much slower rate because the banks enlarged their excess reserves.
• D) fall, and this led to a sharp decline in the M1 money supply.

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