Which statement best describes how the Fed responds to recessions? It sells more securities. It charges banks more interest. It increases reserve requirements. It increases the money supply.

## Step 1<br />The Federal Reserve, also known as the Fed, is the central banking system of the United States. It plays a crucial role in managing the economy, particularly during recessions. The Fed has several tools at its disposal to combat recessions, including selling more securities, increasing reserve requirements, and charging banks more interest.<br /><br />## Step 2<br />However, the most effective tool the Fed uses to combat recessions is to increase the money supply. This is done by purchasing more government bonds, which increases the amount of money in the economy.<br /><br />## Step 3<br />By increasing the money supply, the Fed aims to stimulate economic activity. This is because when there is more money in the economy, businesses and consumers are more likely to spend, which can help to pull the economy out of a recession.