Monetary Policy

Definition

Monetary policy refers to the actions and decisions taken by a country's central bank or monetary authority to control and regulate the supply of money, interest rates, and credit in order to achieve specific economic goals.

Analogy

Think of monetary policy as a thermostat for the economy. Just like how you adjust the temperature on a thermostat to keep your house comfortable, monetary policy is used by the government to regulate economic conditions and keep them in balance.

Related terms

Inflation: Inflation refers to the general increase in prices over time, resulting in a decrease in purchasing power.

Federal Reserve: The Federal Reserve (also known as "the Fed") is the central banking system of the United States responsible for implementing monetary policy.

Interest Rates: Interest rates are the percentage charged or paid for borrowing money. They play a crucial role in influencing consumer spending and investment.