Monetary Policy

Monetary Policy refers to the actions undertaken by a nation’s central bank or monetary authority to manage the money supply, interest rates, and inflation in order to achieve macroeconomic objectives such as stable prices, full employment, and economic growth. It involves the use of tools such as open market operations, discount rates, and reserve requirements to influence the availability and cost of money and credit in the economy. There are two main types of monetary policy: expansionary, which aims to stimulate economic growth by increasing the money supply and lowering interest rates, and contractionary, which seeks to reduce inflation by decreasing the money supply and raising interest rates. The effectiveness of monetary policy can vary based on economic conditions and external factors, making its implementation a critical aspect of economic management.