Impacts of Federal Reserve Policies

Changes in a country's money supply shifts the country's aggregate demand curve.

An expansionary monetary policy is used to increase economic growth, and generally decreases unemployment and increases inflation.

A restrictive monetary policy will generally increase unemployment and decrease inflation.

Limitations of monetary policy include liquidity traps, deflation, and being canceled out by other factors.

Inflation targeting occurs when a central bank attempts to steer inflation towards a set number using monetary tools.