The Federal Reserve plays a crucial role in stabilizing the economy from "summary" of Financial Markets and Institutions, Global Edition by Frederic S. Mishkin,Stanley G. Eakins
The Federal Reserve, often referred to as the Fed, is the central bank of the United States and plays a pivotal role in maintaining economic stability. Through its various tools and policies, the Fed aims to promote full employment, stabilize prices, and moderate long-term interest rates. One of the primary ways in which the Fed accomplishes these objectives is through monetary policy. Monetary policy involves the control of the money supply and interest rates to influence the overall level of economic activity. By adjusting the federal funds rate, which is the interest rate at which banks lend reserves to each other overnight, the Fed can influence borrowing, spending, and investment decisions. Lowering the federal funds rate encourages borrowing and spending, which can stimulate economic growth during periods of sluggish activity. Conversely, raising the ...
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