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Federal Reserve Essay

900 Words4 Pages

1.0. History and Purpose
2.0. Steps It Takes to Stabilize the Economy
2.1. Interest Rates
2.2. Unemployment
2.3. Inflation
3.0. How the Actions of the Federal Reserve Impact Your Life
4.0. Conclusion The Federal Reserve
The Federal Reserve, or Fed, is the country's central bank. The Federal Reserve Act seeks to uphold the stability of the United States financial system and promote economic expansion (Zhao 176). It is the most potent economic organization in the world and is principally in charge of establishing and upholding monetary policy. Its choices significantly impact the economy as a whole, businesses, consumers, and financial markets. Therefore, it is essential to comprehend the Federal Reserve and its roles to understand how its …show more content…

The Fed may decide to lower interest rates to encourage borrowing and spending when inflation and unemployment are high (Kiseľáková et al. 9367). This promotes economic growth and increases employment. In contrast, if inflation gets out of control, the Fed may raise interest rates to slow down the economy and lower inflation. As a result, businesses may find it harder to borrow money and hire staff, which could increase unemployment.
Inflation
The Federal Reserve affects the economy's inflation as well. When prices for goods and services go up, often in response to rising demand, this is called inflation. The Federal Reserve raises and lowers interest rates to combat this (Knodell 18). The Fed can slow economic growth and lower inflation by raising interest rates. On the other hand, the Fed can encourage inflation and economic growth by lowering interest rates. This keeps prices consistent while fostering economic stability.
How the Actions of the Federal Reserve Impact Your …show more content…

High-interest rates make borrowing money more challenging for people and businesses who need financing for a purchase or project (Kiseľáková et al. 9367). High-interest rates also prevent spending because it will take longer to recoup the money used to repay the loan. Finally, savers can profit from high-interest rates because they will probably receive higher interest payments from their savings.
The Federal Reserve's actions can also impact the unemployment rate in the economy. The Fed may lower interest rates when unemployment is high and inflation is low in order to encourage borrowing and spending. This promotes economic growth and increases employment. Similarly, if inflation rises too much, the Fed may increase interest rates to halt economic expansion and bring inflation down (Zhao 180). As a result, unemployment may increase as businesses need help finding funding and filling open positions.

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