Question
Both in good times and bad, the Federal Reserve (Fed) is continually considering the optimal structure of Monetary Policy for the United States. In so
Both in good times and bad, the Federal Reserve (Fed) is continually considering the optimal structure of Monetary Policy for the United States. In so doing, the Fed must focus on the primary objectives it seeks to achieve in setting this policy. Campbell believes that two different objectives dominate the thinking of the Fed, and that these two objectives often conflict with each other, in that the achievement of one often tends to impede the achievement of the other. What does Campbell identify as the two primary objectives of Fed Monetary Policy?
When analyzing Federal Reserve (Fed) Monetary Policy, observers often contrast a more restrictive policy, which they call tightening, with a more accommodative policy, which they call easing. Lets say at some point in time the Fed is concerned about an increasing rate of price inflation, and decides to tighten. Lets also say that the Fed decides to implement this policy through its Open Market Activities. As we know, Open Market Activity refers to the Feds actions buying and selling government bonds over its Trading Desk at the New York Federal Reserve. Given the policy objectives above, will the Fed want to sell bonds, or buy them? What effect will these Open Market Activities tend to have on the level of Bank Excess Reserves?
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