Monetary Policy

Monetary policy refers to the actions taken by a central bank or monetary authority to control the money supply, interest rates, and inflation in an economy. The primary goal of monetary policy is to maintain economic stability by influencing inflation, unemployment, and economic growth. Central banks can implement expansionary monetary policy (lowering interest rates, increasing the money supply) or contractionary monetary policy (raising interest rates, reducing the money supply) depending on the economic environment.

Example

The Federal Reserve lowers interest rates as part of an expansionary monetary policy to stimulate borrowing, spending, and economic growth during a recession.