Question

The U.S. is going through a period of economic difficulty; many people are out of work and buying has decreased dramatically. Place a checkmark next to each strategy the Fed might use to help stimulate the economy. The Fed increases the discount rate. The Fed decreases the discount rate. The Fed encourages government spending and lowering taxes. The Fed follows a tight monetary policy. The Fed follows an easy monetary policy. The Fed discourages spending.

Answer 1

Answer:

• The Fed decreases the discount rate

•The Fed encourages government spending and lowering taxes

•The Fed follows an easy monetary policy

Explanation:

The Fed uses the following to stimulate an economy;

• The Fed decreases the discount rate. Discount rate is a measurement of credit conditions in an economy. If the Fed decreases the discount rate, the excess reserves of the commercial banks with the regulatory agency increases hence enable them to charge lower rates on loan given to people which also expands money supply.

•The Fed encourages government spending and lowering taxes. When government spends, such will stimulate the demand for goods and services, which will bring about employment and increase output. Lowering taxes will enable people have higher disposable income which will enable them to spend more.

•The Fed allows an easy monetary policy. Monetary policy is a policy used by the government of a country to control the supply of money in an economy. To stimulate growth in an economy, the Fed allows an easy monetary policy thereby increasing the volume of money in circulation. Tools of monetary policies are Open market operation, bank reserve requirements, lending directly to banks etc.