Central Banks & Monetary Policy
Master how central banks control economies through interest rates, money supply, and crisis interventions
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0 / 5 completedThe Power Behind Modern Economies
Central banks are the most powerful economic institutions in the world. A single interest rate decision by the Federal Reserve can move trillions in global markets, create or destroy millions of jobs, and determine whether you can afford a house or car.
🎯What Central Banks Do
Control Inflation
Primary job: Keep prices stable (usually 2% annual inflation target). Too high = erosion of savings. Too low = economic stagnation.
Maximize Employment
Support job creation through low rates when unemployment is high. But avoid overheating that causes inflation.
Financial Stability
Prevent banking crises, act as lender of last resort, regulate financial system to avoid 2008-style collapse.
Currency Management
Maintain currency value, manage foreign reserves, sometimes intervene in forex markets to stabilize exchange rates.
⚖️ The Dual Mandate Dilemma
The Federal Reserve has two goals: maximum employment AND price stability. But these often conflict.
Low unemployment: Can cause inflation as wages rise and demand increases
Low inflation: Often requires higher interest rates that slow growth and increase unemployment
💡 Central banks must constantly balance these competing priorities based on current economic conditions.