Answer to Question #98412 in Macroeconomics for Tiffany

Question

2. The U.S. Federal Reserve is the central bank of the United States. It has many roles in the economy, but one of the key roles is conducting monetary policy.
a. What is monetary policy?

Answer 1

Monetary policy is one of the tools that a national government uses to influence its economy. In the USA, monetary policy comprises the Federal Reserve's actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates. Monetary policy directly affects short-term interest rates; it indirectly affects longer-term interest rates, currency exchange rates, and prices of equities and other assets and thus wealth. Through these channels, monetary policy influences household spending, business investment, production, employment, and inflation in the United States.