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In economic decision making the FOMC uses the most up-to-date economic data on variables such as employment, growth, and productivity. To project future economic conditions the Fed economist have developed several economic models. Economic data are plugged into to these models; then the results are analyzed and used to make monetary policy decisions. The Beige Book also provides key information. The Beige Book is published eight times a year and contains anecdotal information about the state of the economy in each of the 12 Federal Reserve Districts.
The Fed begins with the conclusion that economic growth is either undesirably rapid or uncomfortably slow. Having made the conclusion that unwanted economic conditions are likely to persist or worsen without some direct policy action, the Fed will implement either a restrictive or expansionary monetary policy. If economic growth is considered to be undesirably rapid, the Fed will undertake a restrictive monetary policy with the goal of slowing economic growth and dampening inflationary pressures. If economic growth is considered to be undesirably slow or the economy is in a recession, the Fed will undertake an expansionary monetary policy with the goal of accelerating economic growth and lowering the unemployment rate.
Monetary policy may not always have the economic effects the Fed desires. Falling interest rates increase consumption. The “new” money created by the Fed is lent out or invested by financial institutions and finds its way into the economy. This will decrease private savings by decreasing incentives to save. Also during a severe recession when there is little demand for goods and services. There will be no reason for business to undertake capital investment to expand productive capacity. In this situation, an expansionary monetary policy will do the economy little good. Finally although the Fed has nearly precise control