Answer:
To promote price stability, the Fed breaks up a monopolistic international corporation
Explanation:
The Federal Reserve or the Fed uses monetary policies to regulate the supply of money and credit in the economy. Among its many tools, the Fed uses the fed interest rate to influence the market interest rate. By controlling interest rates, Fed achieves price stability and ensures stable economic growth.
The Fed has tools that track inflation levels. High inflation leads to high prices as there will be too much money chasing few goods. Should the Fed observes high inflation levels, it will hike the fed rate. An increase in the Fed rate leads to high-interest rates in the market. High-interest rates discourage borrowing, thus cutting money supply in the economy.
By using the fed rate, the Federal Reserve controls competition in international trade. High interests rate attract many foreign investors. US dollar-denominated assets attract investors due to their high yield as a result of high-interest rates. Demand for the US dollar goes up, leading to its strengthening. A strong US dollar makes exports expensive, which reduces demand for US manufactured goods. Imports will be cheap, which gives local manufacturers unfair competition.
The majority of International trade is US dollar-denominated. A week US dollar may result in massive losses in value or even collapse on many economies.
