Based on the video, which economic theories were most clearly applied by the Federal Reserve in response to the economic crisis?Describe the connections between the Fed’s actions and the theories of Smith, Keynes, Hayek, or Friedman.

Answer:

The Fed’s actions most clearly reflected the ideas of Keynes and Friedman. By cutting interest rates, providing emergency loans, and buying financial assets, the Fed tried to encourage borrowing and spending and support jobs, which is consistent with Keynesian policy. These actions also expanded the supply of money and credit to prevent a financial collapse, reflecting Friedman’s emphasis on avoiding a contraction in the money supply. The response was less consistent with Hayek’s view that markets should be allowed to correct themselves with limited intervention.