Monetary Policy and the Fed's Dual Mandate

What are the two main goals given to the Federal Reserve by Congress?

• Interest rate adjustment and inflation control

• Banking regulation and fiscal policy

• Maximum employment and price stability

• Economic growth and international trade

What does price stability mean according to the Federal Reserve?

• Prices never change

• Prices increase at a rapid pace

• Prices decrease over time

• Inflation rate remains low and stable

What does maximum employment refer to?

• The highest level of employment sustainable over time

• Zero unemployment

• A situation where there are more jobs than workers

• Employment where everyone works part-time

What is the desired inflation rate target by the FOMC?

• 1%

• 2%

• 3%

• 4%

How often does the FOMC meet to review economic conditions?

• Four times a year

• Twelve times a year

• Twice a year

• Eight times a year

What is the primary short-term interest rate that the FOMC targets?

• Mortgage rate

• Prime rate

• Discount rate

• Federal funds rate

What happens when the FOMC increases the target range for the federal funds rate?

• Economic activity increases

• Inflation decreases

• Households and businesses spend more

• Interest rates on loans and mortgages decrease

What is the FOMC's goal when it lowers the federal funds rate target range?

• To stimulate economic activity

• To increase inflation rapidly

• To increase savings

• To reduce employment

What tool does the Fed use to influence the federal funds rate?

• Government spending

• Fiscal policy

• Quantitative easing

• Policy tools

What effect do higher interest rates have on the economy?

• Increase in consumer spending

• Decrease in unemployment

• Increase in the money supply

• Decrease in investment by businesses