Question

What methods could the Federal Reserve use to stabilize the economy?(1 point)
Responses

The Federal Reserve provides loans to banks that cannot obtain loans to prevent shortages in cash.
The Federal Reserve provides loans to banks that cannot obtain loans to prevent shortages in cash.

The Federal Reserve prevents banks from lending who do not have the reserves to lend.
The Federal Reserve prevents banks from lending who do not have the reserves to lend.

The Federal Reserve increases interest rates to incentivize banks to lend.
The Federal Reserve increases interest rates to incentivize banks to lend.

The Federal Reserve issues money to individuals to stimulate the economy.

Answer 1

The most appropriate method that the Federal Reserve could use to stabilize the economy from the options provided is:

**The Federal Reserve provides loans to banks that cannot obtain loans to prevent shortages in cash.**

This action falls under the Fed's role as a lender of last resort and can help maintain liquidity in the banking system, ensuring that banks can continue to operate and lend to individuals and businesses, thereby supporting economic stability.

The other options either misrepresent the Fed's typical functions or would not effectively stabilize the economy. For example, increasing interest rates is generally meant to curb inflation rather than incentivize lending, and issuing money directly to individuals is not a typical policy the Fed employs.