Module Thirteen Lesson One

By: Taylor Richardson

The Federal Reserve

The fed helps maintain a high employment and stable prices for consumers.

The main tool the Fed uses to influence the economy is interest rates—the price everyone pays to borrow money. When the Fed wants more business it raises the money supply. The two most common are by lowering interest rates or by buying government securities. If the Fed lowers interest rates, it becomes easier and cheaper for companies to borrow money. Meaning, they borrow and spend more. If the Fed thinks that there is too much business activity it will take the opposite steps. It will raise interest rates and it will sell government bonds and this will take money out of the economy and make it harder for banks and people to borrow.