Final answer:
A Central Bank is most likely to engage in quantitative easing, which involves purchasing long-term securities to stimulate economic demand, particularly when traditional monetary policy tools are ineffective due to low interest rates. The Federal Reserve employed this policy during the 2008-2009 recession. Option b is the correct answer.
Step-by-step explanation:
The action a Central Bank is most likely to engage in among the options provided is quantitative easing (QE). During the 2008-2009 recession, the Federal Reserve (Fed) adopted QE as a means to make credit available and stimulate aggregate demand, especially when interest rates were already at near-zero levels and could not be lowered further.
QE is characterized by the purchase of long-term government and private mortgage-backed securities by central banks, which is different from the traditional monetary policy tool of open market operations that typically involve short-term government securities.
Another function that central banks can perform is being the lender of last resort, which the Fed stepped into during the 1987 stock market crash and the 2008 financial crisis. It involved making short-term emergency loans to ensure the stability of the financial system. However, this function, although crucial, is typically exercised in more extreme circumstances to avert financial meltdowns. Balancing the Federal government budget is not a central bank function; it is a fiscal policy concern that rests with the treasury and legislative branches of the government.
Thus, given the context and the roles typically assumed by central banks such as the Federal Reserve, the correct option among those provided is b Quantitative easing.