If the economy is in a recession, the Fed could:

Question

Quizplus · Accepted Answer

During a recession, the economy needs a boost in spending. By buying bonds through open market operations, the Fed injects money into the economy and encourages spending. Selling bonds would have the opposite effect and reduce spending. Increasing the discount rate would make borrowing more expensive and reduce spending, and increasing the reserve requirement would reduce the amount banks can lend and also reduce spending. Therefore, buying bonds through open market operations is the most effective choice for the Fed during a recession.

If the Economy Is in a Recession, the Fed Could