Question

If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by

Answer 1

Answer: C. Reduce interest rates by increasing the money supply

Explanation:

If the Fed hopes to prevent unemployment and recession it needs to stimulate the economy to produce more goods and services as this will stave off recession while reducing unemployment as people will be needed to produce those goods and services.

The Fed can increase money supply which will lead to interest rates decreasing. When this happens more companies and individuals will be able to borrow funds as the cost of borrowing is low. These funds can then be invested in projects to increase production in the economy.