The Federal Reserve and Monetary Policy

"The Federal Reserve and Monetary Policy"

Visit the  Federal Reserve  website and answer the following questions in your own words.

Part 1:

· What is the mission and legal mandate of the Federal Reserve System?

· What policy tools are available to the Fed to achieve its mission?

· What is the difference between an insolvent bank and an illiquid bank?

. Why/how does the Fed treat banks that are insolvent differently from illiquid banks?

Part 2:

The Fed has only increased the interest or discount rate twice since the 2007/08 recession. Will it push the rates up a bit more? We don't know! We can find out what those at the Fed are thinking by checking out posted information each month by the FOMC (Federal Open Market Committee).

· According to the Fed, what are its inflation and full-employment targets?

· Explain how changes in the money supply will raise interest rates and how the anticipated increase in interest rates will likely affect GDP and employment.