During and following the 2007-2009 recession, the FED used a number of unconvent

Question

During and following the 2007-2009 recession, the FED used a number of unconventional methods to increase the money supply and keep interest rates low. This week you are going to explore those methods and their short run impacts and possible long run negative effects.

Where they effective in ending the recession and stimulating a recovery in a timely fashion? (For comparison, you may wish to review past business cycle time periods by examining the business cycle data at the National Bureau of Economic Research.) What was the impact on the housing market from the FED's purchases of mortgage backed securities?
What is the risk of inflation presented by the huge growth in the monetary supply?
What has been the inflationary/deflationary impact(s) of the growth in the money supply so far, if any? (You can find current and historical inflation rates at the Bureau of Labor Statistics website.)
How does the information you have learned this week, relate to the saving glut topic from week 1?
Does this week's information modify your week 1 views?

Explanation / Answer

Answer 1:

Yes, 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.

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.

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