Monetary policy is a macroeconomic tool used by the government to regulate the supply of money and credit in the economy. The central bank, in most countries, is responsible for implementing monetary policy.
The primary objective of monetary policy is to maintain price stability and limit inflation. Central banks aim to keep the economy running smoothly with a steady growth rate by managing interest rates and the money supply. They use various tools such as open market operations, reserve requirements, discount rate, and quantitative easing to achieve this objective.
By influencing the availability and cost of money in the economy, monetary policy affects the borrowing, spending, lending, investments, and saving behavior of individuals and businesses. Changes in monetary policy can either stimulate or slow down economic growth, depending on the prevailing economic conditions.
Overall, effective implementation of monetary policy can help to stabilize the economy, reduce inflation, and promote sustainable growth.
Monetary Policy
What is it and what does it do for the economy?
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