Question
Mary and Martha were talking about the role played by the Federal Reserve System in the United States. Mary seemed to be quite well informed
Mary and Martha were talking about the role played by the Federal Reserve System in the United States. Mary seemed to be quite well informed about the functions and activities of our central bank. "You see, Martha, the Fed is the main guardian of our nation's economic stability," Mary declared. "In America, we don't want inflation and we don't want recession. To stretch the situation just a bit, we are frightened, absolutely terrified, by thoughts of hyperinflation and depression. So, the Fed maintains the right to alter the situation and protect us from these two monsters. And you ask, how they do that? The answer is the discount rate. That is the device that the Federal Reserve System uses to keep us safe."
Martha was enjoying listening to her friend explain it all. Mary continued, "Now the discount rate is the interest rate that the twelve Federal Reserve Banks around the country charge their member banks on a loan. So, when the discount rate goes up, all interest rates tend to go up. And, happy to say, when interest rates go up all over America, this tends to slow down any inflationary tendencies." Martha asked, "Does the Fed have other tools for stopping inflation?" "No," said Mary.
Question: Judging from Mary's remarks, which do we as a nation fear the most - inflation or recession?
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