Question

The Board of Governors of the Federal Reserve holds a meeting to discuss its concern over the decreasing gross domestic product of the country. All members agree that the situation can be brought under control and the economy can be stimulated if they use the discount rate as a tool. In this scenario, the Fed is most likely to

Answer 1

Answer:

Reduce discount rate

Explanation:

The discount rate is the rate at which the central bank charges the member banks to borrow in order to maintain the required reserve.

If there is a decrease in GDP and the discount rate will be used to combat it, the discount rate has to be lowered. This is an expansionary monetary policy and it is used to stimulate growth. This will lead to increase in money supply, enhance lending, and increases economic growth. It can be used during recession or when there is low economic activity