Which program was designed to purchase assets and equity from financial institutions during the subprime crisis, originally authorizing expenditures of $700 billion?

Which program was designed to purchase assets and equity from financial institutions during the subprime crisis, originally authorizing expenditures of $700 billion?

• A. New Deal
• B. Clean Water Act
• C. TARP (2008)
• D. National Debt Reduction Act

Answer: (C)

This question tests understanding of a major crisis-era intervention designed to stabilize the financial system by removing risky assets from banks’ balance sheets and providing capital to financial institutions. The program that fits this description is TARP, the Troubled Asset Relief Program. Enacted in 2008, it was authorized to spend up to $700 billion to purchase troubled assets, such as mortgage-backed securities, and to inject capital into banks. The goal was to restore liquidity in credit markets, reassure investors, and prevent a total collapse of the financial system. The other options don’t match what happened in 2008. The New Deal refers to a set of recovery programs from the 1930s aimed at combating the Great Depression, not a crisis-era asset-purchase program. The Clean Water Act is about environmental regulation, not financial stabilization. The National Debt Reduction Act isn’t the name of a crisis-response program tied to asset purchases.

This question tests understanding of a major crisis-era intervention designed to stabilize the financial system by removing risky assets from banks’ balance sheets and providing capital to financial institutions. The program that fits this description is TARP, the Troubled Asset Relief Program. Enacted in 2008, it was authorized to spend up to $700 billion to purchase troubled assets, such as mortgage-backed securities, and to inject capital into banks. The goal was to restore liquidity in credit markets, reassure investors, and prevent a total collapse of the financial system.

The other options don’t match what happened in 2008. The New Deal refers to a set of recovery programs from the 1930s aimed at combating the Great Depression, not a crisis-era asset-purchase program. The Clean Water Act is about environmental regulation, not financial stabilization. The National Debt Reduction Act isn’t the name of a crisis-response program tied to asset purchases.