Question

When a recession hits, the Federal Reserve would be expected to:

reduce the required reserve ratio, reduce the discount rate, and buy securities in the open market

reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market

reduce the required reserve ratio, increase the discount rate, and buy securities on the open market

increase the required reserve ratio, increase the discount rate, and buy securities on the open market

Answer 1

When any type of recession hits and economy let's say the covid-19 that had impacted the whole world then it slows down the economy, lowers the employment rate and overall the economy becomes becomes stagnant

So for this Federal reserve adopts the monetary policy and the policy to counter it is called Expansionary monetary policy

In this the Federal reserve buys the government securities or government bonds in the open market operations

It also lowers the reserve require ratio which means now bank has to hold less amount of money and more flow of money in the economy and overall increase in the money supply

There is also reduction in the discount rate

Discount rate is interest rate at which Federal reserve Bank lends to other commercial banks

Opposite to expansionary monetary policy is contractionary monetary policy in which the goal of Federal reserve is to decrease the money supply by buying the government securities

So the only correct answer here is option A