If there is a recession, the Fed would most likely
A) increase bank reserves by raising the discount rate.
B) increase bank reserves by buying government securities.
C) decrease bank reserves by raising the discount rate.
D) decrease bank reserves by selling government securities.
E) decrease bank reserves by lowering the legal reserve requirement.

Question

Quizplus · Accepted Answer

In the case of a recession, the Fed would want to stimulate the economy by increasing the money supply. One way to do this is by buying government securities from banks, which increases their reserves and allows them to lend out more money. Therefore, increasing bank reserves by buying government securities is the most likely action the Fed would take during a recession.

If There Is a Recession, the Fed Would Most Likely