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true or false? In a recession, the Fed usually purchases short-term government securities to decrease interest...

true or false? In a recession, the Fed usually purchases short-term government securities to decrease interest rates and increase spending.

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Answer #1

True.

  • During a recession Fed usually tries to increase the money supply as recession is a time period in which the Economy faces a decline in GDP and various economic activities which is accompanied by unemployment.
  • It increases the money supply by purchasing government securities from the open markets which increases the amount of reserves in the economy and the inflation rate.
  • This action of Fed decreases the interest rates as money supply and Interest rates are inversely related to each other, thereby increasing the overall spending in the Economy.
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