Monetary Policy

Apr

11

2016

Monetary policy is the by which the government controls the supply of money, often targeting the interest rate and inflation rate. It also aims to contribute to economic growth and stability, to lower unemployment, and to maintain predictable exchange rates with other currencies.Monetary policy is either expansionary or contractionary. The expansionary monetary policy increases the total supply of money more rapidly than usual. It is usually used to combat unemployment in a recession by lowering interest rates in the hope that easy credit will motivate businesses into expanding. Contractionary monetary policy expands the money supply more slowly than usual or even shrinks it. It s intended to slow inflation in order to avoid the resulting distortions and deterioration of asset values.

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