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What happens to interest rates when the Fed increase money? When it decreases money? What is...

What happens to interest rates when the Fed increase money? When it decreases money?

What is the primary role of money?

What is the benchmark interest rate in the US?

The goal of the monetary system is to ensure just the right amount of money is in the economy. Explain why this is the case.

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Answer #1

When Fed increases the money supply in the market, the interest rates come down to ensure enough liquidity in market. Contrary to it the interest rate goes up when Fed decreases money supply.

Primary role of money is to ensure liquidity and control inflation and stabilize GDP.

Benchmarking interest rate in US is 2.25%

Goal of monetary system is to ensure right amlunt of money circulation takes place because higher amount kf money supply leads to hyperinflation and can cause recession in long run if excessive liquidity is observed. Secondly lesser amount of liquidity is kept to curb down hyperinflation.

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