Bank Reserve when eceonomy is in recessionary mode

timer Asked: Jul 31st, 2014
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Question Description

When the economy is in a recessionary mode, what will likely be the actions by the Federal Reserve using monetary policy?

How is the velocity of money related to the level of economic activity

Tutor Answer

Prashant S
School: Cornell University

The US economy is highly influenced by keynsian economics policy, where the govt looks to stimulate the economy by printing more money. The bank reserve will print more money, and send IOU's to the treasury in the form of US bonds.

The velocity of money declines during recession. By printing money and doing  a stimulus plan, the govt hopes to increase the velocity.

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Thanks, good work

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