In Exhibit A (October 2006) the federal funds rate was 5.25 percent. In Exhibit B (December 2007) is federal funds rate is only 4.25 percent. In the second paragraph of Exhibit B, the FOMC states that "Today's action, combined with the policy actions taken earlier, should help to promote moderate growth over time." Note that "Policy actions taken earlier" refers to prior cuts in the interest rate. How did the Federal Reserve implement this interest rate cut (note that this isbeforethe 2008 Great Financial Crisis (GFC))? How does this affect the Federal Reserve's balance sheet? Please explain your answers to both of these questions.

October 25, 2006 FOMC statement For immediate release Share The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace. Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information