ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Federal Reserve System has been given a dual mandate-pursuing the economic goals of maximum employment and price stability. It does this by using a variety of policy tools to manage financial conditions that encourage progress toward its dual mandate objectives-in other words, conducting monetary policy.

Detailed explanation-2: -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-3: -The Federal Open Market Committee (FOMC or Committee) is responsible for monetary policy decisions to achieve these goals. The goals of maximum employment and price stability, commonly known as the “dual mandate”, create the conditions for moderate long-term interest rates.

Detailed explanation-4: -The Bottom Line. Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply.