Recall the Application about how the Fed kept the U.S. financial system in operation following the attacks of September 11, 2001, to answer the following question(s). To help prevent financial firms from defaulting on their debts, the Fed took several steps to provide additional funds to the financial system, including allowing banks to borrow more, increasing the difference between the credits and debits it extended while serving as a clearinghouse for checks, purchasing government securities, and providing dollars to foreign central banks. Together, these actions increased the credit extended by the Fed by over $90 billion.
According to this Application, following the attacks of September 11, 2001, the Federal Reserve purchased government securities, putting $30 million in the hands of private citizens and their banks. By extending cash to banks during the potential financial crisis following the September 11 attacks, the Fed was attempting to:
Choose one answer.
A. decrease the federal deficit.
B. fend off a possible recession.
C. decrease net exports.
D. reduce potential inflation.