Question

If the United States falls into a recession, which action would the Federal Reserve take to encourage employment? (4 points)

a) Buy government securities
b) Increase reserve requirements
c) Raise federal funds and prime rates
d) Sell government securities

Answer 1

The Federal Reserve would take action to encourage employment through an expansionary monetary policy, specifically by buying government securities.

Step-by-step explanation:

In the event of a recession, the Federal Reserve would typically take action to encourage employment through an expansionary monetary policy. This would involve increasing the money supply and lowering interest rates. By doing so, they aim to stimulate spending, investment, and borrowing, which can lead to increased economic activity and job creation.

One specific action the Federal Reserve can take is to buy government securities. When the Federal Reserve buys government securities from banks, it injects money into the banking system. This increases the reserves that banks have available to lend, which in turn can stimulate borrowing and investment by businesses, leading to job creation.

Therefore, the correct action the Federal Reserve would take to encourage employment during a recession is a) Buy government securities.