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Federal Reserve: Inflation And Recession In The Economy

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There are several options available to the Federal Reserve to indirectly battle inflation and recession in the economy. Within the open market the Fed can buy and sell bonds which in turn increases or decreases the reserve funds banks have available to lend, thus, effecting the interest rate for consumer loans. Contractionary policy is utilized during times of inflation where the Fed sells government securities making less funds available for lending and raising interest rates which slows the economy and the rate of inflation. Consumers and businesses will be less interested in borrowing funds with higher interest rates therefore, overall spending is reduced creating less demand for funds and a decrease in the price level. The use of Expansionary

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