What are the goals of the Federal Reserve and how does the Federal Res

What are the goals of the Federal Reserve and how does the Federal Reserve attempt to control inflation”? Why is low and steady inflation important?

What will be an ideal response?

ANSWER

The Fed’s primary goals are to maintain stable prices or low and steady inflation, maximize employment, and moderate long-term interest rates.

There is often a direct link between inflation and the nation’s money supply, which is controlled by the Fed. Some economists claim that too much money “chasing” too few goods tends to cause inflation. In other words, if the Fed makes more money available to banks and banks more readily lend this money to consumers, then consumers will want to make more purchases. If, however, the supply of goods and services is limited, then the price of these goods and services will rise as demand increases.

Consumers are hesitant to purchase if they think their wages cannot keep up with rising prices, and they hesitate to purchase if they think prices are about to go down,. Thus, relative price stability is the “sweet spot.”