Question

Hypothetical situation: The economy has been declining for six months. The unemployment rate has increased by 2 percent in the past six months, and many Americans are looking for work. Production has decreased and many businesses are simply not investing or hiring new workers. Consumers are saving (not spending) their money because they are worried about current events. From what you learned in this course, what is the most logical action for the Federal Reserve to take?

Answer 1

Answer:

The Fed needs to engage in an expansionary monetary policy.

Explanation:

An expansionary monetary policy is carried out by lowering the interest rates and purchasing government securities. This will increase the money supply and increase total spending. An increase int eh total spending should reverse the decline of the economy and help it rebound.