Which economic policy is commonly used by the Federal Reserve to stimulate the economy?

The choice to decrease interest rates is commonly employed by the Federal Reserve as a means to stimulate economic activity. Lowering interest rates makes borrowing less expensive for consumers and businesses, which encourages spending and investment. When interest rates are reduced, people are more likely to take out loans for purchases such as homes or cars, and businesses might invest in new projects or expand operations due to the lower cost of financing. This increase in consumer spending and business investment can lead to economic growth, job creation, and an overall improvement in economic conditions.

Additionally, decreasing interest rates can also boost the stock market, as lower rates often lead to higher corporate profits and make equities more attractive relative to bonds. This can lead to increased wealth for individuals, further fueling consumer spending.

The other options relate to fiscal policies or trade practices that do not directly influence the money supply or borrowing costs in the way that interest rate changes do. Therefore, the effectiveness of decreasing interest rates as a monetary policy tool to spur economic growth is well established in economic theory and practice.