Final answer:
To stimulate the economy, the Federal Reserve could reduce the reserve requirement or buy government bonds through open market operations. Increasing the discount rate would not be stimulative, and cutting taxes is not an action the Federal Reserve can take. An appropriate action would be (C) Reducing the reserve requirement.
Step-by-step explanation:
To stimulate the United States economy, the Federal Reserve can implement various actions. An appropriate action would be (C) Reducing the reserve requirement.
This decreases the amount of funds that banks are required to hold in reserve, which increases the amount of money available for banks to lend. More lending can stimulate economic activity by making it easier for businesses and consumers to borrow and spend.
Another effective method is open market operations, particularly buying government bonds. When the Federal Reserve buys bonds, it increases the money supply and lowers interest rates, which encourages borrowing and spending. Quantitative easing (QE), a form of large-scale asset purchases, is also used to lower interest rates and stimulate the economy when traditional methods are limited, especially when the federal funds rate is near zero.
The option of increasing the discount rate (B) would be counterproductive as it would make it more expensive for banks to borrow money from the Federal Reserve, which could lead to tighter credit conditions.
Lastly, cutting taxes (D) is not a direct action of the Federal Reserve as it pertains to fiscal policy, which is implemented by the government through its spending and taxation powers.