Question

The Federal Reserve has recently undertaken very aggressive and unprecedented actions to support the economy and therefore promote “maximum employment and price stability” in the U.S. economy. Explain 6 actions taken by the Fed and the intended consequence of each action taken.

Answer 1

The Fed government followed a policy of Fed's dual mandate regarding monetary policy . It is to promote maximum employment and price stabiliy

1) MAXIMUM EMPLOYMENT

Maximum sustainable empolyment is the level at which cyclical unemployment is eliminated .

2) PRICE STABILITY

The price stability is a prerequisite to preserve the purchasing power of money . The federal open market company has equated price stability with a low , measured rate of inflation to achieve this part of the mandate the FOMC target an inflation rate of 2% over the long run.

3)Another measure taken by the fed was that of the policy of moderate long term interest rate .

4) Open market operation was another measure which involve the buying and selling of the government securities

5) The federal fund rate is another one to carry out monetary policy. The federal fund's rate is linked to the interest rates that banks and another financial institutions charge for loans.

6) Targeting interest rate versus targeting money supply.

CONSEQUENCES

The fed affects inflation, employement and economic production indirectly by setting monetery policy. The fed affects the money supply by setting the federal fund rate . Some investment strategies , known as "don't fight the fed", revolve around following the governments monetary policy