The "quantitative easing" policies of the Fed during, and following, the financial crisis of 2008-2009, resulted in
A) rapid growth of both the money supply and nominal GDP.
B) rapid growth of the money supply and a substantial increase in the rate of inflation.
C) low interest rates and a sharp decline in the velocity of the money supply.
D) low interest rates and a sharp increase in the velocity of the money supply.

Question

Quizplus · Accepted Answer

The Fed's quantitative easing policies resulted in low interest rates, but did not lead to a substantial increase in the rate of inflation. Instead, the velocity of the money supply sharply declined, as commercial banks held onto the increased reserves created by the Fed's asset purchases rather than lending them out to consumers and businesses. This in turn limited the impact of the Fed's policy on the money supply and nominal GDP growth.

The "Quantitative Easing" Policies of the Fed During, and Following