ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Fed has several monetary policy tools it can use to fight off a recession. It can lower interest rates to spark demand and increase the amount of money in circulation via open market operations (OMO), including quantitative easing (QE), through which additional types of assets may be purchased by the Fed.

Detailed explanation-2: -Monetary policy in this case is said to “tighten” or become more “contractionary” or “restrictive.” To offset or reverse economic downturns and bolster inflation, the Fed can use its monetary policy tools to lower the federal funds rate.

Detailed explanation-3: -During a recession, he explains, the longstanding consensus has been to rely on monetary policy by lowering interest rates. Once that approach stops working, there’s typically a switch to fiscal policy, such as issuing stimulus checks.

Detailed explanation-4: -To increase the (growth of the) money supply, the Fed could either buy bonds, lower the reserve requirement ratio, or lower the discount rate. To decrease the (growth of the) money supply, the Fed could either sell bonds, raise the reserve requirement ratio, or raise the discount rate.