If the Fed was concerned about the economy falling into recession,it might try to stimulate the economy by:
A) raising the interest rate paid on reserves.
B) purchasing additional government securities.
C) conduct open market sales.
D) raising the discount rate.

Question

Quizplus · Accepted Answer

Purchasing additional government securities would increase the money supply, lower interest rates, and stimulate spending and investment. This is a common measure used by the Fed to stimulate the economy and avoid a recession.

The other options would have the opposite effect of tightening monetary policy, which would be counterproductive in a time of economic weakness. A) Raising the interest rate on reserves would decrease the money supply and increase interest rates, slowing down economic activity. C) Conducting open market sales would also decrease the money supply and increase interest rates. D) Raising the discount rate would make borrowing from the Fed more expensive, further tightening credit and slowing down the economy.

If the Fed Was Concerned About the Economy Falling into Recession,it