The Fed may respond to a recession by 1: decreasing interest rates. 2:  decreasing government spending.

The Fed may respond to a recession by

1: decreasing interest rates.

2:  decreasing government spending.

Answer:  1. decreasing interest rates.

The Federal Reserve, or rather the Fed is in charge of monetary policy and will quite often slash rates during economic ravages to revive growth. An economic recession essentially implies a slowdown of the economy as evidenced by falling GDP, soaring unemployment and plummeted consumer demand. The Fed has the ability to stimulate economic growth through lowering short-term interest rates. This means that the cost of borrowing money for both business and individual consumers is lower, hence more investment as well as consumption practices. Lower interest rates also encourage people to spend more rather than save. This boosts money supply that can save an economy from slipping into a recess ion. On the other hand, reduction in government spending would withdraw funds from the economy and even deepen a recession . Thus what the fed does during recessions is to practice expansionary monetary policy in which it lowers interest rates as an initiative of economic stimulation.