The US Federal Reserve's Monetary Policy

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U.S. Federal Reserve's Monetary Policy The nation's monetary policy is set up by the Federal Reserve in order to support the aims and objectives of better employment, stable prices and a suitable and logical long term interest rates. One of the main challenges that are faced by policy makers is the stress among the aims and objectives that can occur in the short term and the fact that information regarding the economy becomes delayed and can be inaccurate (Monetary). The Federal Reserve Act lays out the monetary policy that states that the Board of Governors and the Federal Open Market Committee should look for "to support effectively the aims of maximum employment, stable prices, and moderate long-term interest rates." The pre-requirement for highest sustainable growth and employment rates along with long term interest rates is price stability in the long run. Long run stable prices prevents merchandise, services, materials and labor from getting distorted by inflation and hence turn out to be good indicators to the proficient distribution of resources and consequently add to better and higher standards of living (Meyer, 2004). Moreover, price stability promotes saving and generates capital since the risk of inflation causing attrition of asset values is decreased and hence people are driven to save more and business tend to invest more. Interest rates are manipulated by expanding or contracting the monetary base. This comprises of circulatory currency and reserves in
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