Question

The Fed uses monetary policy to offset the effects of a recession​ (high unemployment and falling prices when actual real GDP falls short of potential​ GDP) and the effects of a rapid expansion​ (high prices and​ wages). Can the​ Fed, therefore, eliminate​ recessions?

A) The Fed can only soften the magnitude of recessions, not eliminate them.
B) The Fed can, but choses not to, eliminate recessions
C) The Fed can eliminate recessions by properly 10T anticipating the economic events that cause them
D) The Fed is only concerned with the money supply and interest rates

Answer 1

Answer: The correct option is A. The Fed can only soften the magnitude of recessions, not eliminate them.

Explanation: A recession is a term that refers to a period where there is a significant decline in economic activities that is spread across the economy, that will more than a few months, and is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

To answer the question above therefore, recessions cannot be eliminated because there will always be a decline in economic activities, hence, the best that the Fed can do is to soften the effects of recessions.

This can be done in various ways which include:

- Lowering interest rates.

- Lowering capital requirements

- Quantitative easing.

Answer 2

A

Step-by-step explanation:

in this question, we are to select from the options which is the correct answer.

Option A is the correct answer

The Fed can only soften the magnitude of recession, not eliminate them

This is because the fed introduced monetary policy and it’s only implemented to offset the effect so he would be able to relax the effect of recession and high expansion it only suggest mid way to offset the effect of low and high economic activities.