Monetary policy is made up of the actions of a central bank, a currency board or regulatory committee that decides on the growth and size of the money supply, which will also affect rates of interest. Monetary policy also performs actions like changing of interest rates, the purchase or sale of government bonds, and determining the quantity of cash that banks keep in the bank reserve. The Federal reserve determines the monetary policy in the United States.
In broad terms, there are two kinds of monetary policy, contractionary and expansionary. Contractionary monetary policy decreases the rate of growth in the money supply to decrease inflation. Sometimes contractionary monetary policy can slow economic growth, slow borrowing and spending,
In broad terms, there are two kinds of monetary policy, contractionary and expansionary. Contractionary monetary policy decreases the rate of growth in the money supply to decrease inflation. Sometimes contractionary monetary policy can slow economic growth, slow borrowing and spending,