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Homework answers / question archive / If the country falls into a recession, the Fed might be able to counteract this by A

If the country falls into a recession, the Fed might be able to counteract this by A

Economics

If the country falls into a recession, the Fed might be able to counteract this by

A. increasing the discount rate

B. carrying out expansionary fiscal policy

C. forcing the government to reduce its deficits

D. buying bonds in the open market

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The correct option is D. buying bonds in the open market.

An Open Market Operation is one of the monetary policy tools used by the Federal Reserve to stabilize the economy. During a recession, the Fed implements an expansionary monetary policy. An expansionary monetary policy might include the purchase of government securities to inject funds in the bank account to sellers boosting the commercial banks' reserves and the ability of commercial banks to lend money.

On the contrary, option A. is wrong because, during a recession, the discount rate is lowered by the Fed. Additionally, fiscal policies are implemented by the government and not the Fed. Option C. is also not a task of the Fed.