The Federal Reserve can stimulate the United States economy and reduce unemployment if it employs an expansionary monetary policy.
Expansionary policy, often known as loose monetary policy, expands the availability of money and credit in order to stimulate economic development. During difficult economic circumstances, a central bank may use expansionary monetary policy to promote economic growth and stimulate growth.
During recessions, the Fed utilizes a variety of monetary policy measures to assist lower unemployment and re-inflate prices. Open market purchases, reserve management, discount financing, and forward guidance to control market expectations are among the methods available.
For example, if the Fed purchases bonds on the open market, it expands the economy's money supply by exchanging bonds for cash from the general public. If the Fed sells bonds, it reduces the money supply by withdrawing cash from the economy in return for bonds.
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