If the country were experiencing a recession, the Federal Reserve would increase government spending. A method of doing this is to buy back securities from dealers and banks. This results in an increase of money supply to banking and loan industries. When the Federal government buys securities they are buying from large security dealers and banks. When the purchases are made the seller deposits the money made from the sale into their bank. As a result, the seller deposits the funds back into their accounts. This process increases money supply which increases a reserve balance with the Federal Reserve. The increased reserve allows support for additional loans. When additional loans are granted, interest on borrowed money increases and the banks make more profit. This increases money supply that filters back into the reserve.
