Central banks like the Federal Reserve control money supply and interest rates. Raising rates cools inflation but slows growth. Cutting rates stimulates borrowing. QE (Quantitative Easing) injects money into the economy.
Answer: Maximum employment and price stability (low inflation). The Fed has a dual mandate: maximum employment and stable prices (2% inflation target).
Answer: Higher borrowing costs and slower economic growth. Rate hikes increase borrowing costs, cooling consumer spending and business investment — slowing the economy.
Answer: The central bank buying bonds to inject money into the economy. QE has the Fed buying bonds from banks, increasing their reserves and lowering long-term interest rates.
Answer: The Fed shrinking its balance sheet by letting bonds mature. QT is the reverse of QE — the Fed stops reinvesting maturing bonds, draining liquidity from the system.
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