Free Custom «The Federal Reserve» Essay Paper

The Federal Reserve was keen to alleviate the economic difficulties that were being experienced during the Great Recession. During this period, the Federal Reserve played a key role in lowering the interest rates hence promoting the level of borrowing among individuals in the economy. Brezina (2011) opines that the reduction in the interest rates promoted the level at which banks in the United States of America could lend to their citizens hence helping improve the level of economic activities taking place. Banks were able to lend more to individuals in the economy hence facilitating the access to essential goods and services in the economy.

Grusky, Western, & Wimer (2011) affirms that concerning firms that were considered “too big to fail”, the Federal Reserve decided to extend credit to them in order to preserve their stability in the declining US economy. Most companies such as AIG were hard-hit by the recession and had to be rescued from collapsing because of their strategic nature in the economy. With the extension of credit to these companies, the Federal Reserve believed that they could deal with their debts easily and remain stable within the economy. Additionally, the credit rates could help these companies continue with their production activities hence facilitating effective supply of products and services in the economy.

 

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The actions by the Federal Reserve were necessary to avoid a collapse in the financial system. It is significant to note that these actions were necessary to prevent the collapse of the financial system because they helped alleviate the job crisis in the United States of America. The decline in economic activities means that most resources were unemployed hence affecting the economy further. Hetzel (2012) confirms that the lowering of interest rates was vital to increase the employment levels and consumption levels in the economy. More so, these measures were necessary because they helped promote the gradual stabilization of the economy due to the balance of the sectors in the economy such as households and firms.