Greg Mankiw wrote in 2007 on the eve of the global financial crisis, “Congress made its most important contribution to taming the business cycle back in 1913, when it created the Federal Reserve System. Today, the Fed remains the first line of defence against recession.”
a. Describe the process by which action by the Fed in times of recession flows through the economy.
b. Draw a graph the illustrate the Fed’s action and its effect.