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Unformatted text preview: About Inflation and Interest Rates The Federal Reserve’s monetary policy
objectives include a dual mandate
objectives The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate longterm interest rates."
Federal Reserve Act of 1977
24 What You Should Know About Inflation and Interest Rates If inflation is causing the cost of goods to go
up, then prices are NOT stable
NOT Normally the stock market does not do well! To control inflation, the Fed uses monetary
policy to change interest rates:
policy Higher inflation will lead to an INCREASE in
interest rates, which cools the inflated economy
and possibly causes a recession (and loss of jobs)
Low inflation or a recession will lead to
LOWER interest rates to stimulate the economy
and lead to higher economic growth and jobs
25 Every Financial Decision
Involves Evaluating Types of Risk Income risk The loss of a job Keep an emergency reserve of at least three
Keep months take home pay
months Maintain your skills and contacts The inability to get a job upon graduation K...
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This document was uploaded on 02/12/2014.
- Spring '14