ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -As a result, the goals of maximum employment and stable prices are often referred to as the Fed’s “dual mandate.” Maximum employment is the highest level of employment or lowest level of unemployment that the economy can sustain while maintaining a stable inflation rate.

Detailed explanation-2: -Maintaining stable prices Since 1996, Fed policymakers have generally adopted the stance that their target for doing so was an inflation rate of around 2%.

Detailed explanation-3: -When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.

Detailed explanation-4: -Tools the Federal Reserve Uses To Control Inflation The Fed has several tools it traditionally uses to tame inflation. It usually uses open market operations (OMO), the federal funds rate, and the discount rate in tandem. It rarely changes the reserve requirement.

Detailed explanation-5: -The Federal Reserve targets an inflation rate of 2 percent, in part to stave off deflation in the event of an economic downturn. Maintaining a healthy level of inflation could also give the central bank additional room to lower interest rates when it wants to stimulate the economy.