Which three objectives are identified as the Federal Reserve's main objectives?

• A. Maximum employment, stable prices, and moderate long-term interest rates
• B. Price stability only
• C. Full employment with zero inflation
• D. High growth irrespective of inflation

Answer: (A)

The main concept here is the Fed’s mandate to guide the economy through monetary policy. The best answer reflects the three goals the Fed pursues: maximum employment, stable prices, and moderate long-term interest rates.

Maximum employment means aiming for as many people who want to work to have jobs, while avoiding actions that would cause excessive inflation. Stable prices mean keeping inflation low and predictable so that the purchasing power of money doesn’t fluctuate wildly and households and businesses can plan. Moderate long-term interest rates help ensure that borrowing costs for households and firms are stable over time, which supports sustainable investment and growth.

This combination matters because focusing on just price stability, or insisting on zero inflation with full employment, or chasing high growth without regard to inflation, would either ignore the labor market, lead to unstable costs of borrowing, or allow inflation to run too hot. The option that lists all three goals captures the Fed’s approach to balanced, sustainable economic health.