Question

During an economic recession, how was the United States federal reserve altar their monetary policy?

A.) The fed would increase the discount rate on loans.

B.) The Fed would buy bonds from investors.

C.) The Fed would raise the reserve requirements for banks.

Answer 1

During an economic recession, the United States Federal Reserve would alter their monetary policy by increasing the discount rates on loans, and also by buying bonds from investors.

Step-by-step explanation:

• During an economic recession, the supply of money in the economy drops dramatically leaving an adverse impact on the market.

• The demand for goods is automatically lowered and the economy ceases to thrive.

• In such situations of economic stress, the Federal Reserve tries to increase the supply of money in the market by increasing the discount rates on loans and by buying bonds from investors in order to increase the liquidity.

• Any steps that would worsen the conditions - like raising the reserve requirements for the banks, are avoided by the Federal Reserve.

Answer 2

Option A

Increasing the discount rate on the loans would make the loan availability at subsidized rate to the consumers to maintain the liquidity with in the bank. Lower discount rates lower the interest rate which would in turn increase lending and spending both by the consumer and businessmen.