Question

If the Federal Reserve wants to prevent a recession, it should _____.

Multiple Choice

decrease the money supply to raise interest rates and lower aggregate demand

increase the money supply to lower interest rates and raise aggregate demand

increase the money supply to raise interest rates and lower aggregate demand

decrease the money supply to lower interest rates and increase aggregate demand

Answer 1

The correct option is increase the money supply to lower interest rates and raise aggregate demand

If the Federal Reserve wants to prevent a recession, it should increase the money supply to lower interest rates and raise aggregate demand. This is the expansionary monetary policy followed by fed to prevent a recession.