What is the role of the Federal Reserve Bank during a depression?

The role of the Federal Reserve Bank during a depression typically involves manipulating monetary policy to stabilize the economy, which often includes lowering interest rates and loosening credit conditions rather than raising interest rates. Central banks, including the Federal Reserve, aim to encourage borrowing and spending when the economy is struggling. By lowering interest rates, the Federal Reserve makes loans cheaper, which can stimulate investment and consumption.

In a depression, the economy is characterized by decreased consumer confidence, high unemployment, and low spending. Thus, the correct approach for the Federal Reserve is to facilitate a more favorable credit environment that encourages growth and recovery. The other responses suggest approaches that do not align with traditional monetary policy or the Fed's primary tools in addressing economic downturns. For instance, decreasing taxes or providing direct financial support involves fiscal policy decisions typically managed by Congress and the executive branch, not the Federal Reserve. Increasing government spending also pertains to fiscal policy rather than the Federal Reserve's role.