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

Question

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

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

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

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

Answer 1

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

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

This method helps ensure liquidity in the banking system, encourages lending, and stabilizes the economy during times of financial distress. The other options may not effectively achieve stabilization:

• Option a is impractical and not a standard method employed by the Federal Reserve.
• Option b could actually reduce liquidity in the economy, potentially exacerbating economic issues.
• Option d, increasing interest rates, typically discourages borrowing and spending, which may not stabilize a struggling economy.