With inflation rates above 8%, the United States of America is experiencing inflation rate growth unseen since the early 80s. By March of 2022, gasoline prices increased by 48% due to the war in Ukraine, and food prices increased by 8.8%. The global supply chain issues have also caused prices of consumer goods to increase. Ideally, the Federal Reserve (FED) would like prices to be stable and for inflation to stay around 2% each year. The FED has several contractionary monetary policy tools to use in order to control inflation.
Q: 1.how it affects the currency within an economy, and
2. why the FED would want to control it.
3. What are three monetary policies used by the FED that can affect the money supply and economic activity?
4. For each monetary policy explain how it can be used to increase or decrease money supply and economic activity. ○ You must clearly explain each method i.e. buying or selling, raising or lowering, increasing or decreasing.
Choose one Monetary Policy (that you described above) that you believe the FED could use to decrease inflation. Now explain how this policy could be used to decrease inflation. ○ Make sure to logically explain how the monetary policy you chose ultimately affects inflation based on its effects on money supply and economic activity.
