Question

Which of the following would be an action by the federal reserve during a recession?

a. Decrease governmental spending to encourage borrowing
b. Increase governmental spending to stimulate the economy
c. Lower interest rates to encourage borrowing and spending
d. Implement quantitative easing to increase the money supply

Answer 1

During a recession, the Federal Reserve can lower interest rates to encourage borrowing and increase the money supply through quantitative easing.

Step-by-step explanation:

During a recession, the Federal Reserve may implement a monetary policy to stimulate the economy. One action the Federal Reserve can take is to lower interest rates to encourage borrowing and spending. By reducing interest rates, the cost of borrowing money decreases, which can incentivize businesses and individuals to take out loans, invest, and stimulate economic activity.

Another action the Federal Reserve can take is to implement quantitative easing to increase the money supply. This involves the purchase of long-term government and private mortgage-backed securities. By injecting more money into the economy, the Federal Reserve aims to make credit more accessible and stimulate aggregate demand.