ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -There are four major things the Fed can do to curb a recession: Reduce the reserve ratio-If banks don’t have to keep as high a percentage of their assets in reserves, they have more accessible money. This might lead them to offer more attractive loans to their customers, which can help boost economic growth.

Detailed explanation-2: -When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses. This increases the nation’s money supply and expands the economy.

Detailed explanation-3: -When the economy is in recessionary gap, the Fed will adopt expansionary monetary policy to increase money supply in the market by buying securities, lowering the reserve rate, and/or decreasing the discount rate.

Detailed explanation-4: -But remember, the Fed cuts interest rates to increase the amount of money available in the economy and spur economic growth.