Answer :
The Federal Reserve implements monetary policy and primarily uses its policy tools to affect the availability and cost of credit in the economy, affecting employment and inflation.
The primary tool used by the Federal Reserve to conduct monetary policy is the Federal Funds Rate. This is the rate banks pay to borrow overnight on the Federal Funds Market. Changes in the Federal Funds Rate affect other interest rates and, in turn, the cost of borrowing for households and businesses, as well as general funding conditions.
For example, lower interest rates make it cheaper to borrow money, households are more willing to buy goods and services, and businesses are more likely to buy goods and other items to expand their businesses. B. Real Estate and Equipment. Businesses can also hire more workers, thereby impacting employment. Also, increased demand for goods and services can push up wages and other costs, affecting inflation. During recessions, the Fed can cut the Fed Funds Rate almost to the zero lower bound.
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