The Fed followed far more expansionary policy in the early 2000s than the Taylor rule suggested because the economy:

A. experienced inflation but there was no signal that output exceeded potential output.
B. did not experience any inflation but there was a signal that output exceeded potential output.
C. did not experience any inflation and there was no signal that output exceeded potential output.
D. experienced inflation and there a signal that output exceeded potential output.

The Fed followed far more expansionary policy in the early 2000s than the Taylor rule suggested because the economy in the following way

Explanation:

1.The Fed acts as a lender of last resort—lending to banks and financial institutions of other nations when no one else will. When households cannot obtain credit from banks, they can get credit directly from the Fed. Thus, the Fed's role as a lender of last resort helps households when no one else will.

2.The U.S. central banking system—the Federal Reserve, or the Fed—has come under heightened focus in the wake of the 2007–2009 global financial crisis, as its role in setting economic policy has dramatically expanded.

Post-crisis, the Fed faced scrutiny for its unorthodox monetary policy, known as quantitative easing (QE), which helped sustain the recovery but ballooned the Fed’s total assets from $869 billion in 2007 to nearly $4.5 trillion in 2017. At the same time, the 2010 Dodd-Frank financial reform redefined the central bank’s responsibility for evaluating the health of the nation’s financial system.

3.Since 2015, the Fed has focused on returning to a more normalized monetary policy. Former Fed Chair Janet Yellen oversaw rising rates throughout 2016 and 2017 and announced the end of QE, a process known as tapering. President Donald J. Trump broke with precedent in 2018 by replacing Yellen with businessman and sitting Fed Governor Jerome Powell, the first non-economist to hold the post since the 1970s. Powell has supported Yellen’s approach to unwinding the Fed’s unorthodox policies, and he continued to raise interest rates despite pushback from President Trump.