How might the federal reserve to a slowdown in the economy or recession?

Answer 1

Monetary policy: The Federal Reserve can decrease the discount rate, reserve requirement, or buy bonds. The first two in that list will decrease interest rates, thus making people more willing to buy things such as houses and cars and making corporations want to invest more. By selling bonds, the government is buying from the people, which means that people will have more money to spend, etc. When people buy/invest more, the GDP (gross domestic production) increases, and that counters economic slowdowns.

Fiscal policy: The government decreases taxes allowing for people to have more extra money to buy things with. The government can buy more things itself, also increasing GDP.

Answer 2

By increasing the nation's banks' reserve requirements, banks are required to hold more money in reserves, thus they have less money to lend. When banks have less money to lend, this lowers the money supply. With lower money supply, the economy slows.

Alternatively when the Fed loosens the resever requirements, banks have more money to lend, subsequently increasing the national money supply and the economy begins to grow.

Answer 3

Slowing down the economy may be a consequence of a government trying to tame inflation, which is usually associated with rapid economic growth (as seen in many countries such as China, India, Vietnam...)

In order to control inflation, the common approach is to raise interest rate, which has the effect of reducing consumption and investment, thus reducing the aggregate demand, creating a downward pressure on price.

This however, also creates a downward pressure on GDP (since people don't spend as much anymore) thus reducing economic growth.

Therefore, federal reserve wants to slow the economy to fight inflation.

Answer 4

By buying bonds in the open market

apex!!