Question

During a recession, the best strategy of the Federal Reserve is to buy bonds sell government bonds, to make low risk sound assets available for banks to buy sell government bonds in order to reduce the size of the government's deficits. sell government bonds in order to increase aggregate demand

Answer 1

Answer:

To buy government bonds in order to increase aggregate demand.

Explanation:

When the Fed buys government bonds, it injects liquidity into the markets. This increase in the money supply lowers interest rates, increasing investment, and finally, boosting aggregate demand.

However, the Fed must be careful, because if the money supply grows too fast, or too much, instead of a boots for aggregate demand, what occurs is a spike in inflation rates.