Macroeconomics hw question help!! (10pts)?

Question

If the Fed believes the economy is about to fall into recession, what actions should it take? If the Fed believes the inflation rate is about to increase, what actions should it take?

I always give best answer!!

Answer 1

This is probably more of an opinion rather than an answer; but here it goes.

RE:  Recession

The government needs to do something more to stimulate the economy than giving a pithy check. This increased our national debt and both directly and indirectly affected the value of the USD.

There is little-to-no assistance in a country where the wealth is very unequally distributed. People have lost faith in the government. We are afraid to spend money because we do not know what the future holds.

Everyone is so focused on a timeline for getting the Troops out of the Middle East. We need a timeline on what to expect of our economy.

Offering insurance for publicly-held stock may be an option, too. Of course, it is a little suggestion among many things that need to be done.

Inflation will always increase, that cannot be stopped. The recession is avoidable, however, will always occur when citizens lose faith in their government.

Answer 2

Fed implements monetary policy, thus to prevent falling into recession it may pursue easy-money policy (increasing money-supply) - it lowers interest rates making money more affordable for investment/credits, etc. This increases AD and moves economy from recession.

Too high inflation can be resisted by "tight money" policy, when FED shortens money-supply and it becomes less affordable, interest rates rises and money relatively evaluates (or devaluation slows down), thus inflation is reduced.