Foundations of Economics, 8th Edition

Chapter Summary

Key Points

1. Describe the objectives of U.S. monetary policy, the framework for achieving those objectives, and the Fed’s monetary policy actions.

   • The Federal Reserve Act requires the Fed to use monetary policy to achieve the “dual mandate” of maximum employment and stable prices.

   • The Fed’s goals can come into conflict in the short run.

   • The Fed translates the goal of stable prices as a core inflation rate of ­between 1 and 2 percent a year.

   • The Fed’s monetary policy instrument is the federal funds rate.

   • The Fed sets the federal funds rate at the level that makes its forecast of ­inflation and other goals equal to their targets.

   • The Fed hits its federal funds rate target by using open market operations and in times of financial ...