... the decision by the Fed to stimulates economic growth, but an excessively high level of economic activity can cause inflation pressures to build to a point that ultimately undermines the sustainability of an economic expansion. An increase in the federal funds interest rate will curb economic growth and help contain inflation pressures, and thus can promote the sustainability of an economic expansion, but too large an increase could retard economic growth too much. The money supply can be defined as notes and coins circulating outside the central bank. It is designed to control the amount of money flowing around the economy. The money supply is controlled by the Fed through its monetary policy stabilise the business cycle. As the nation's central bank, the Fed determines the total amount of money circulating around the economy. In principle, the Fed can use three different 'tools'--open market operations, the discount rate, and reserve ...

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