Question

janet yellen the chairperson of the federal reserve, has received a report that the unemployment rate has gone very high and gdp has gone very low. what steps should she take to alleviate this problem?

Answer 1

Clarification: Federal Reserve's ability to positively impact unemployment rate or GDP growth is limited and mostly, indirect. Policies, incentives, subsidies, regulations, and internal and external agreements can't be changed, approved or negotiated by Federal Reserve. Those decisions are Government and Congress responsibility.

Having said this, Federal Reserve can:

1. Reduce interest rate to make credit less expensive for businesses and households, and as a consequence businesses can hire more employees and households can purchase more goods and services.

2. Buy government debt or Treasury bonds for funding government and it increases the money supply in the economy by trading bonds in exchange for cash to the general public.