Question

The economy has been sluggish in recent months with slow economic growth. Explain the policies that the Federal Reserve could use to improve the economy.(1 point)
The Federal Reserve stops purchasing treasuries and securities, and then issues new reverse repurchase agreements. The short-term profits and decrease in the money supply cause a decrease in interest rates and increased lending.

The Federal Reserve sells treasuries back to banks and issues new reverse repurchase agreements. The decrease in the money supply increases interest rates, which increases lending.

The Federal Reserve purchases treasuries and securities and also issues new repurchase agreements. The increase in the money supply and decrease in interest rates result in more lending and risk.

The Federal Reserve purchases treasuries and securities, and also issues new repurchase agreements. The increase in the money supply increases interest rates and inflation, which spurs economic growth.

Answer 1

The policy that the Federal Reserve could use to improve the economy are;

C: The Federal Reserve purchases treasuries and securities and also issues new repurchase agreements. The increase in the money supply and decrease in interest rates result in more lending and risk.

The Federal Reserve which is the US Central Bank has 2 major roles which are:

• To find a way to work to achieve low level of unemployment
• To maintain stable prices all through the economy.

Now, when there is recession which is slow economic growth, unemployment level increases, and prices may drop in a process called deflation.

The Federal Reserve could take the following steps to arrest the slide in economic growth;

1. Open market operations; In this system, the federal reserves can lower interest rates by buying debt securities on the open market which is traded in return for newly created bank credit. This means the federal reserve purchases mostly Treasury securities in its normal open market operations.
2. Lower capital requirements
3. Discount Lending

Thus, the correct answer is option C.

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