Question

The Fed uses policy targets of interest rate and/or money supply because

A. The inflation rate is controlled by Congress and the White House
B. The target for the GDP growth rate is set by Congress
C. It can affect the interest rate and the money supply directly and these in turn can affect unemployment, GDP growth, and the price level

Answer 1

It can affect the interest rate and the money supply directly and these in turn can affect unemployment, GDP growth, and the price level

Step-by-step explanation:

The Fed uses target interest rates to stimulate or slow down the economy. It can raise the interest rate to encourage people to save and lower borrowing of money; this move lowers inflation. On the other hand, it can lower the target interest rate to make it cheaper for companies and individuals to borrow money which when invested, creates jobs and resulting in a healthy economic growth.