Suppose that the economy has entered a recession. Which of the following is a monetary policy action a central bank can take to restore full-employment output?
A Selling government bonds
B Decreasing government spending
C Decreasing the discount rate
D Increasing the federal funds rate
E Increasing the required reserve ratioC Decreasing the discount rate
Decreasing the discount rate is an expansionary monetary policy action that will encourage commercial banks to borrow funds from the central bank and extend new loans, thereby expanding the money supply. Expanding the money supply will decrease nominal interest rates, which will increase interest-sensitive spending, moving the economy back towards full employment.