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 implements monetary policy primarily by influencing the federal funds rate, the interest rate that financial institutions charge each other for loans in the overnight market for reserves.

Detailed explanation-3: -The Fed can influence the money supply by modifying reserve requirements, which generally refers to the amount of funds banks must hold against deposits in bank accounts. By lowering the reserve requirements, banks are able to loan more money, which increases the overall supply of money in the economy.

Detailed explanation-4: -Central banks use monetary policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable.