SIE practice questionmediumExpansionary Monetary Policy
During a recession, the Federal Reserve would MOST likely take which of the following actions?
- AIncrease reserve requirements
- BRaise the discount rate
- CSell government securities in open market operations
- DBuy government securities in open market operations✓ Correct answer
Explanation
Why D — Buy government securities in open market operations
During a recession, the Fed implements expansionary (easy money) policy to stimulate the economy. Buying government securities injects money into the banking system, lowering interest rates and encouraging borrowing and spending. Selling securities (A), raising the discount rate (B), and increasing reserves (D) are all contractionary measures that would worsen a recession. Remember: Fed BUYS = expansionary; Fed SELLS = contractionary.
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