What Is the Thrust of Monetary Policy?
Monetary policy is a primary means by which government strives to influence overall economic activity in a matter consistent with its policy goals. Monetary policy can be expansionary or contractionary in response to changing economic conditions.
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Identification
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A government-controlled central bank, such as the Bank of Canada or the U.S. Federal Reserve, administers a nation's monetary policy.
Function
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Monetary policy furthers a nation's economic goals, which generally involve stable growth and low levels of unemployment and inflation.
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Types
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Tools of monetary policy include buying and selling government bonds, setting the discount interest rate and changing the level of reserves that banks are required to maintain.
Benefits
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Monetary policy provides for economic stability and protects the value of money against inflation.
Considerations
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In a sluggish economy with rising unemployment, central banks use expansionary monetary policy to stimulate economic activity. They use contractionary measures to stem inflation or the threat of it.
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- Photo Credit Image by Flickr.com, courtesy of Andrew Magill
