Question

Discuss the Dual Mandate of the FED

Answer 1

The Dual Mandate by the Fed,

The dual mandate is actually a triple mandate by the Fed, to achieve the three most important goals which are :

• Maximum employment
• Stable prices
• Moderate long term interest rates

Maximum employment is not 100% employment or zero percent unemployment as there will always be some level of unemployment. The economy should be able to achieve maximum level of employment.

Stable prices: there should be stability in prices and any inflation or deflation means there exists instability in the economy. In case of rising prices, lenders would want to charge higher rates of interest to mitigate the higher prices due to inflation. So, there is a single mandate which combines stable prices and moderate interest rates as they go hand in hand.