The Federal Reserve is the central bank of the United States. Its primary responsibility is to monitor and respond to changes in monetary and financial market conditions. To do so, the Fed uses multiple tools. These include setting targets for short-term interest rates, monitoring banks and other financial institutions, making loans to private markets, buying and selling government securities, and changing reserve requirements for banks. Read on to understand how can the federal reserve fight recession weegy.
What is a recession?
A recession is a period of economic decline with a general decrease in the country’s gross domestic product (GDP). The length of the recession determines whether it is a mild (short-term), moderate, or severe (long-term) recession. The United States has been in 10 economic recessions since World War II, with the most recent ending in June 2009.
How Can The Federal Reserve Fight Recession Weegy One by One
There are three main tools the Fed can use to combat a recession:
- They are raising or lowering interest rates.
- Buying and selling government securities.
Increasing or decreasing change reserve requirements for banks The first method, raising or lowering interest rates, is done by the Fed raising or lowering the discount rate.
The discount rate is the interest rate the Fed charges commercial banks for short-term loans.
The second method, buying and selling government securities, is the Fed buying or selling government securities and bills. By buying government securities, the Fed puts more money into the economy and raises interest rates.
The third method, increasing or decreasing reserve requirements for banks, occurs when the Fed raises or lowers the amount that banks must keep on reserve for every dollar they have in deposits. This will either increase or decrease the amount of money available for loans.
Which Tool Does The Fed Use to Fight Recession?
The Federal Reserve uses the first method, raising or lowering interest rates, to fight the recession. Raising the interest rate increases the cost of money, discouraging people from spending and encouraging saving.
Lowering the interest rate encourages people to spend and saves less. The Fed’s Board of Governors, which controls the Fed’s interest rate through open market operations, raised the federal funds’ target rate seven times between December 2015 and August 2016.
Good and Bad of Using The Federal Reserve to Fight Recession
Good: The federal reserve can fight recession by increasing the availability of money and lowering interest rates, which encourages spending and saving.
Bad: Decreased standard of living, decreased GDP, decreased exports, increased budget deficits, rising interest rates, increased unemployment rates, decreased investor confidence, decreased international standing, increased government debt rates, increased government spending rates, increased inflation rates, decreased investor confidence, decreased capital flows.
The federal reserve can fight recession by increasing the availability of money and lowering interest rates, which encourages spending and saving. Weegy Bottom Line The federal reserve can fight recession by increasing the availability of money and lowering interest rates. This encourages spending and saving.