Suppose the Federal Reserve plans to conduct expansionary monetary policy during a recession. Which of the following is a policy that would promote this decision?Multiple choice question.Decrease personal income taxesIncrease personal income taxesDecrease the interest rate paid on reservesIncrease the interest rate paid on reserves

The correct answer is "Decrease the interest rate paid on reserves".

Here's why:

1. The Federal Reserve conducts expansionary monetary policy to stimulate the economy during a recession. This involves increasing the money supply and decreasing interest rates to encourage borrowing and spending, which can boost economic activity.

2. Decreasing personal income taxes is a fiscal policy tool, not a monetary policy tool. It's used by the government to stimulate the economy by increasing consumers' disposable income, encouraging them to spend more. However, this is not a policy the Federal Reserve would use.

3. Increasing personal income taxes would likely slow down the economy, as it reduces consumers' disposable income and discourages spending. This is the opposite of what the Federal Reserve would want during a recession.

4. Decreasing the interest rate paid on reserves would encourage banks to lend out more of their reserves, as they would earn less interest from keeping their money at the Federal Reserve. This increases the money supply and stimulates economic activity, aligning with the goals of expansionary monetary policy.

5. Increasing the interest rate paid on reserves would discourage banks from lending, as they would earn more interest from keeping their money at the Federal Reserve. This would decrease the money supply and slow down economic activity, which is the opposite of what the Federal Reserve would want during a recession.