Question

What is the main purpose of the Federal Reserve and what are some other actions that the Fed may take during recessionary times?

Answer 1

Main purpose of Federal Reserve is to manage the monetary policy in the best possible manner in an economy and the Federal Reserve will be trying to switch their monetary policy in synchronisation of the economy and they will be trying to manage the economy in the best possible manner through determination of policy at regular intervals.

Federal Reserve will be trying to cut the interest rates and they will be trying to adopt the quantitative easing policies and they will be lowering the Reserve requirements of the banks and they will also be entering into the open market operations when there will be a recessionary situations in the economy and they will be trying to stimulate the economy by providing the monetary support by cutting the interest rates and lowering the Reserve requirements of bank will be providing it with higher amount of reserved to lend and borrowers will be getting the money at a lower rate of interest so it will be helping in stimulation of demand.

Federal Reserve will be helping in management of the economy in the best possible manner by carrying out bailouts and providing discounting window to the commercial banks so that they can exist and not collapse during such economic downturn so Federal Reserve will also be supporting them in form of quantitative policies and hence the Federal Reserve is an important element in order to control the recession in the economy.