Question

The Federal reserve board of governors has decided to ease monetary conditions to counter early signs of an economic downturn because price inflation has been a burden in recent years the board is eager to avoid any action the public might interpret as a return to inflationary conditions. How might the board use its various powers to accomplish the objective of monetary ease without drawing unfavorable publicity to its actions?

Answer 1

As the fed is concerned about the public perception and increased demand due to increase in the money supply in the market. They can use other tools apart from open market operations to increase the money supply that will not affect the general public directly.

The Fed can decrease the reserve ratio that will increase the money creation by the banks and they can reduce the discount rate that will allow the business firms to borrow cheaply and increase the demand in the market.   Both this will increase the demand and prevent the recession without affect the public much.