Describe three of the ways that the U.S. federal government responded to the financial crisis of 2007-2009 and to the resulting problems in the real sector of the economy. Be sure to include in your answer the government's specific intent in each of these actions

Answer 1

The federal government responses can generally be categorized in three different groups: bailouts, fiscal stimulus, and easy money. Bailouts included the $700 billion Troubled Asset Relief Program (TARP) in which the government purchased some of the bad assets on banks' balance sheets and federal loans to large corporations such as General Motors and Chrysler to prevent bankruptcy of these companies. Fiscal stimulus included the passing of the $787 billion fiscal stimulas bill in February 2009 which was intended to stimulate demand in the economy. Easy money came from the Federal Reserve when it announced in November 2008 that it would purchase $800 billion of private debt in an attempt to increase lending and borrowing in the economy.