The Fed can close a recessionary gap by:
A)increasing fiscal expenditure.
B)increasing taxes.
C)decreasing taxes.
D)selling U.S.government bonds.
E)lowering the discount rate.

Question

Quizplus · Accepted Answer

Lowering the discount rate would encourage banks to borrow more reserves from the Fed, which leads to more money in circulation and an increase in investment and consumption. This can help stimulate economic growth and close a recessionary gap. None of the other options listed directly address the issue of stimulating spending in the economy.

The Fed Can Close a Recessionary Gap By