For your post answer the following questions regarding the June 13 Federal Reser

Question

For your post answer the following questions regarding the June 13 Federal Reserve Statement (Links to an external site.)Links to an external site. and the material in Chapter 15 (Links to an external site.)Links to an external site. of your free text. Please number your responses to each of the questions below:

What are the two broad policy goals of the Federal Reserve consistent with its statutory mandate? Which of these goals does the Federal Reserve hope to accomplish by raising interest rates?

What is the “federal funds rate”? Explain why the federal funds rate is important for the conduct of monetary policy? To what range did the U.S. Federal Reserve raise the federal funds rate during the June meeting?

Explain how the Federal Reserve’s raising of interest rates affects the following variables in the short run: household consumption, business investment, real output, and price levels. Include a well-labeled Aggregate Demand/Aggregate Supply graph that would illustrate the effect of the most recent monetary policy action of the Federal Reserve.

What is one macroeconomic problem that could cause the Federal Reserve to be more aggressive in raising interest rates? Explain. What is one issue that could cause the Fed to slow its intended pace of rate increases, or even stop raising rates? Explain!

Feel free to utilize additional sources to help answer the questions above as long as you cite them.

Explanation / Answer

1) what are the two broad policy goals of the federal reserve consistent with its statutory mandate?

The Federal Reserve works to promote a strong U.S. economy. The congress has directed the fed to conduct the nation's monetary policy to support three specific goals: maximum sustainable employment, stable prices, and moderate long term interest rates. These goals are sometimes referred to as the Fed's "mandate".

Maximum sustainable employment is the highest level of employment that the economy can sustain while maintaining a stable inflation rate.

Prices are considered stable when consumers and businesses don't have to worry about rising or falling prices when making plans, or when borrowing or lending for long periods. When prices are stable, long term interest rates remain at moderate levels, so the goals of price stability and moderate long term interest rates go together.

2) Which of these goals does the federal reserve hope to accomplish by raising interest rates?

When the fed increases the federal fund rates, it does not directly affect the stock market itself. The only truth direct effect is it becomes more expensive for banks to borrow money from the fed. But, as noted, increases in the federal fund rates have a ripple effect. Because it costs them more to borrow money, financial institutions often increase the rates they charge their customers to borrow money. Individual are affected through increases to credit card and mortgage interest rates, especially if these loans carry a variable interest rate. This has the effect of decreasing the amount of money consumers can spend.

3) What is the Federal Funds Rates?

In the United States, the federal funds rate is the interest rate at which depository institutions lend reserve balance to other depository institutions overnight, on an uncollateralized basis. Reserve balance are amount held at the federal reserve to maintain depository institutions reserve requirements. Institutions with surplus balance in their account lend those balance to institutions in need of large balances.

4) Explain why the federal funds rate is important for the conduct of monetary policy?

The use of open-market operations is the most important tool for manipulating monetary policy. The Fed's goal in buying and selling U.S. government securities is to affect the federal funds rate- the rate at which banks borrow reserves from each other. The Federal Open Market Committee(FOMC) sets a target or target range for this rate, but not actual rate itself.

3)

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