Question

The Federal Reserve implemented a series of new policies and tools in response to the 2007-2008 financial crisis and recession. Many economists believe these policies helped avert another Great Depression, but exacerbated what problem in the financial system

Answer 1

Considering the situation described the many economists believe these policies helped avert another Great Depression but exacerbated the inflation problem in the financial system.

This is because the new policies and tools used to tackle the 2007-2008 financial crisis and recession was based on Keynesian economics.

However, while Keynesian economics concentrates on regulating aggregate demand to solve or prevent economic recessions, it is considered inflationary.

This is because it is believed that these policies encourage lower tax rates and increase the national deficit to ensure there is employment.

However, with more money in circulation, many economists believed it would cause inflation and more income disparity.

Hence, in this case, it is concluded that the correct answer is Inflation.

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