What Is Monetary Policy? Meaning & Example
Definition
Monetary policy refers to central bank actions, such as setting interest rates and managing the money supply, to influence the economy. Tighter policy cools activity, while looser policy supports it.
Related terms
A central bank manages a country's money supply and sets key interest rates. Its goals often include stable prices and healthy employment.
Interest RateAn interest rate is the cost of borrowing money or the reward for saving it, shown as a yearly percentage. Central bank rate decisions influence rates throughout the economy.
Fiscal PolicyFiscal policy is how a government uses spending and taxation to influence the economy. It works alongside monetary policy but is set by governments rather than central banks.
What is Monetary Policy?
Monetary policy refers to central bank actions, such as setting interest rates and managing the money supply, to influence the economy. Tighter policy cools activity, while looser policy supports it.
Can you give an example of Monetary Policy?
Lowering interest rates to encourage borrowing during a slowdown is an example of loose monetary policy.