Explain the two main functions of the Federal Reserve Bank, and name and describe the three...

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Economics

Explain the two main functions of the Federal Reserve Bank, andname and describe the three main monetary policy tools that it hasat its disposal.

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two main functions of the Federal Reserve Bank 1 Setting monetary policy The Fed promotes a healthy US economy through its monetary policy The FOMC holds eight meetings per year to review economic trends and vote on new monetary policy measures Officially there are two monetary policy goals that the Fed is striving to achieve High employment Low inflation The main way the Fed achieves these monetary policy goals is by setting a federal funds target rate All depository institutions meaning financial institutions that mainly receive funds through consumer deposits need to hold a certain amount of money at Reserve Banks If a bank or other depository institution doesnt have enough in its reserves to meet their requirements it can get an overnight loan from another financial institution The rate of interest that an institution charges for such a loan is based on the federal funds target rate To fight inflation the Fed can aim to raise the federal funds target rate Alternatively to fight off a recession the Fed can aim to lower it While changes See Answer

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