When the Fed is worried that the economy is heading into a recession, it
A)decreases bank reserves.
B)buys government bonds.
C)orders all banks to decrease interest rates.
D)recommends that Congress lower the federal funds rate.
E)recommends that Congress conduct open market operations.

Question

Quizplus · Accepted Answer

When the Fed is worried that the economy is heading into a recession, it typically engages in expansionary monetary policy which involves buying government bonds to increase the money supply and lower interest rates to stimulate borrowing and spending. Decreasing bank reserves would have the opposite effect and could exacerbate a recession, ordering all banks to decrease interest rates is not within the Fed's power, recommending Congress lower the federal funds rate would require congressional action, and recommending Congress conduct open market operations would be redundant since that is already within the Fed's authority.

When the Fed Is Worried That the Economy Is Heading