Explain How Do The Federal Reserve's Policies Affect Interest Rates And The Inflation Rate
1. How do the Federal Reserve’s policies affect interest rates and the inflation rate? Why is it important for people to know that?
One of the Fed's tools for managing money is to change interest rates. High interest rates make money more expensive and contract the amount of money in circulation and in banks. Low rates make money less expensive and increase the money supply.
2. What action, if any, has the Federal Reserve taken in the past year to control the money supply and inflation? What are the results?
“The Fed actually encourages a moderate inflation rate with inflation rate targeting. Right now that rate is 2%, for the core inflation rate. That's the measurement of inflation excluding gas and food prices, which can be very volatile.
One of the Fed's tools for managing money is to change interest rates. High interest rates make money more expensive and contract the amount of money in circulation and in banks. Low rates make money less expensive and increase the money supply.
2. What action, if any, has the Federal Reserve taken in the past year to control the money supply and inflation? What are the results?
“The Fed actually encourages a moderate inflation rate with inflation rate targeting. Right now that rate is 2%, for the core inflation rate. That's the measurement of inflation excluding gas and food prices, which can be very volatile.