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Monetary policy is a central bank’s actions that influence the country’s money supply and the overall economy. In the United States, the Federal Reserve establishes monetary policy.  It tries to make sure the money supply grows neither too quickly, causing excessive inflation, nor too slowly, hampering economic growth. Ideally, inflation is 2% to 3% annually, which keeps prices stable. The Fed also tries to keep unemployment low, around 5%.

 

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