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Suppose an economy is experiencing a deep recession due to a drop in aggregate demand.
Suppose an economy is experiencing a deep recession due to a drop in aggregate demand. The unemployment rate has climbed but to nearly 10% and the price level has plummeted into the range of deflation. What could the Federal Reserve do to try and stabilize the economy?
a. Increase interest rates by decreasing the supply of money
b. Slow down the economy to stop the deflation
c. Mandate that all banks increase lending or face financial penalties
d. Create incentives for banks to make more loans by increasing bank reserves