The Money View: The New Federal Reserve

The video discusses the connection between war finance and the global financial crisis, focusing on the Federal Reserve's role. Initially, the Fed ensures the Treasury can sell its debt by buying treasury bills and creating money. During the global financial crisis, the Fed expanded its balance sheet by making loans to banks and broker dealers. As these loans were repaid, the Fed initiated quantitative easing (QE1 and QE2) by purchasing mortgage-backed securities and treasury bonds, maintaining liquidity in the financial system.

What is the primary role of the Fed in war finance?

• To ensure the Treasury can sell all its debts

• To increase interest rates

• To reduce government spending

• To regulate private banks

During the initial stage of the global financial crisis, what action did the Fed take?

• Sold government assets

• Made loans to banks and broker dealers

• Reduced the money supply

• Increased taxes

What does QE1 refer to in the context of the Fed's actions?

• The Fed's decision to increase interest rates

• The reduction of the balance sheet

• The sale of treasury bonds

• The purchase of mortgage-backed securities

What was the Fed's project involving $600 billion known as?

• Operation Twist

• TARP

• QE1

• QE2

How did the Fed respond to the repayment of mortgage-backed securities?

• By increasing taxes

• By reducing interest rates

• By selling government assets

• By purchasing more treasury bills and bonds