ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Fed, as the nation’s monetary policy authority, influences the availability and cost of money and credit to promote a healthy economy. Congress has given the Fed two coequal goals for monetary policy: first, maximum employment; and, second, stable prices, meaning low, stable inflation.

Detailed explanation-2: -The Fed’s economic goals prescribed by Congress are to promote maximum employment, stable prices, and moderate long-term interest rates.

Detailed explanation-3: -Monetary policy can offset a downturn because lower interest rates reduce consumers’ cost of borrowing to buy big-ticket items such as cars or houses. For firms, monetary policy can also reduce the cost of investment.

Detailed explanation-4: -The Fed responded to the crisis with a four-pronged strategy. First, it flooded the banking sector with liquidity. Second, it invoked emergency powers granted to it during the Great Depression to lend to financial institutions other than banks. Third, it quickly cut the funds rate to zero.

Detailed explanation-5: -Monetary policy employs tools used by central bankers to keep a nation’s economy stable while limiting inflation and unemployment. Expansionary monetary policy stimulates a receding economy and contractionary monetary policy slows down an inflationary economy.