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because they don't want to be crushed by the interest rate consumer spending on items will fall, causing real gdp to fall as well
Federal Reserve controls money supply and regulates banks
2 types of monetary policies
Expansionary Monetary Policy
When Fed puts in and increases the money supply in the system which makes it easier for banks to loan out money, lowering the interest rate which increases consumer spending which increases GDP
Contractionary Monetary Policy
When fed decreases money supply causing interest rates to go up decreases investment and consumer spending, slowing down the economy
goal is to flight inflation
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