What is the role of the Federal Reserve during a recession?
A. To stop all trade with other countries
B. To raise taxes on wealthy individuals
C. To manage money supply and interest rates
D. To shut down failing companies
Answer (2)
The correct answer is letter C. To manage money supply and interest ratesThe Federal Reserve, also called the Fed, is responsible for controlling how much money flows in the economy and setting interest rates. During a recession, it usually lowers interest rates and injects more money into the system to encourage borrowing and spending. This helps the economy recover. For example, the Bangko Sentral ng Pilipinas (BSP) does a similar job in the Philippines. In 2020, during the pandemic, BSP lowered interest rates to help businesses and workers affected by lockdowns.
The correct answer is C. To manage money supply and interest ratesDuring a recession, the Federal Reserve (the central bank of the U.S.) aims to stimulate the economy by lowering interest rates and increasing the money supply. Lower interest rates make borrowing cheaper, encouraging spending and investment. This helps boost economic activity and reduce unemployment. The Fed does not raise taxes, stop trade, or shut down companies—that’s not its role.
