[04.04MC] Which of the following actions would the Federal Reserve most likely take during
an economic recession? (5 points)
Increase reserve requirement
Raise interest rates
Lower discount rate
Sell government securities

Lower discount rate

Explanation:

When commercial banks and other institutions borrow from the federal reserve, they repay at an interest rate known as the discount rate. The discount rate becomes the benchmark for inter-bank borrowing, and by extension, loans to customers. An increase or decline in the discount rate results in banks' interest rates moving in the same direction.

A recession is a business cycle where the growth rate is very low or negative. It is associated with low demand for goods and services, a high unemployment rate, and reduced production. The federal reserve intervenes by employing measures to stimulate production and growth.

In reducing the discount rate, banks' interest rates will reduce. The costs of borrowing money decreases. Firms and households can borrow money for consumption and investment. Reducing the discount rate increases the money supply in the economy. Demand for products and services goes up, which stimulates more production and growth in the GDP value.

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