Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability. Central banks use monetary policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable. The Federal Reserve Bank implements monetary policy in the United States through a dual mandate to achieve maximum employment while keeping inflation in check.
Monetary policy is a set of tools used by a nations central bank to control the overall money supply and promote economic growth. The tools of monetary policy vary from central bank to central bank, but they commonly include revising interest rates and changing bank reserve requirements. Monetary policy is commonly classified as either expansionary or contractionary.
The Federal Reserve commonly uses three strategies for monetary policy including reserve requirements, the discount rate, and open market operations. When the central bank puts money into the system by buying or borrowing securities, colloquially called loosening policy, the rate declines. It usually rises when the central bank takes money out of the system by selling securities.
In summary, monetary policy is a set of actions taken by a nations central bank to control the overall money supply and promote economic growth. The tools of monetary policy vary from central bank to central bank, but they commonly include revising interest rates and changing bank reserve requirements. The Federal Reserve commonly uses three strategies for monetary policy including reserve requirements, the discount rate, and open market operations.
