Before 2008, open market operations were the Fed’s primary monetary policy tool because there were limited reserves in the banking system, a so-called scarce-reserves regime. In a scarce-reserves environment, the supply curve intersects the demand curve on the downward-sloping part of the demand curve, as illustrated in the left panel of figure 4. Open market operations are the tool old textbooks emphasize.
Managers, now refocused, are pressing hard to identify and eliminate those redundant or nonessential activities that accumulated in the boom years. With margins under pressure, businesses have also been reallocating their capital so as to use it more productively.