The Fed uses monetary policy to offset the effects of a recession (high unemployment and falling prices when actual real GDP falls short of potential GDP) and the effects of a rapid expansion (high prices and wages). Can the Fed, therefore, eliminate recessions?

Question

Toby Craig

Business

23 July, 12:36

The Fed uses monetary policy to offset the effects of a recession (high unemployment and falling prices when actual real GDP falls short of potential GDP) and the effects of a rapid expansion (high prices and wages). Can the Fed, therefore, eliminate recessions?

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Answers (1)

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Beatrice Bridges · Answer 1

The Fed can only soften the magnitude of recession, not eliminate them.

Explanation:

No The Fed cannot eliminate recessions but fed introduced monetary policy and it only implement monetary policy to offset the effect so he would be able to relax the effect of recession and high expansion it only suggest mid way to offset the effect of low and high economic activities.

Therefore, The Fed can only soften the magnitude of recession, not eliminate them.