how does the federal reserve provide long-term stability of the purchasing power of money?

Expert Solution

Federal reserve is the central bank of the United states of America and for any central bank maintaining price stability in the economy for the long-term sustainable growth is very important. The purchasing power of money is related to the it’s purchasing power of a basket of goods and services. The inflation can significantly erode the purchasing power of a currency if there is high inflation in the economy but at the same time moderate inflation is important so that so the GDP of the country keeps on growing. The central bank aim of maintaining price stability is in that direction where the inflation in the economy does not gets too high nor it is too low or negative, both are not a favorable situation for the economy so federal reserve uses its monetary policies to regulate the supply of money in the circulation in order to maintain price stability and also making sure that economy keeps on growing at a sustainable rate.

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