Question

In a recession, how do you think the Federal Reserve should react in an open market
operation? Why?

Answer 1

In the time of recession.federal reserve will buy the bond which increases the money flow in the economy.

Answer 2

They would buy government securities/ bonds, which sends in funds in the exchange settlement accounts of backs( accounts in which they settle transactions with one another. Liquidity rises, there is less competition for fund as they are in surplus. Their price falls, cash rate falls.

Answer 3

They react this was to try to encourage householders to borrow from banks and consume, and firms to do the same for investment. It is so that the economy can grow along the trend line to an upswing.