The Federal Reserve and Monetary Policy: Explain how changes in the money supply will raise interest rates and how the anticipated increase in interest rates will likely affect GDP and employment.
“The Federal Reserve and Monetary Policy”
Visit the Federal Reserve website and answer the following questions in your own words.
- What is the mission and legal mandate of the Federal Reserve System?
- What policy tools are available to the Fed to achieve its mission?
- What is the difference between an insolvent bank and an illiquid bank?
- Why/how does the Fed treat banks that are insolvent differently from illiquid banks?
The Fed has only increased the interest or discount rate twice since the 2007/08 recession. Will it push the rates up a bit more? We don’t know! We can find out what those at the Fed are thinking by checking out posted information each month by the FOMC (Federal Open Market Committee).
- According to the Fed, what are its inflation and full-employment targets?
- Explain how changes in the money supply will raise interest rates and how the anticipated increase in interest rates will likely affect GDP and employment.