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Mandate objectives

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Unformatted text preview: About Inflation and Interest Rates The Federal Reserve’s monetary policy The 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 If up, then prices are NOT stable NOT Normally the stock market does not do well! To control inflation, the Fed uses monetary To policy to change interest rates: policy Higher inflation will lead to an INCREASE in Higher INCREASE interest rates, which cools the inflated economy and possibly causes a recession (and loss of jobs) and Low inflation or a recession will lead to Low LOWER interest rates to stimulate the economy LOWER and lead to higher economic growth and jobs and 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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