Monetary Policy
Featured
Intermediate Level
Global
Macroeconomics
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Definition
The process by which a central bank controls the money supply and interest rates to achieve macroeconomic objectives.
Detailed Explanation
Central banks use tools like repo rate, reverse repo rate, open market operations, and reserve requirements. Expansionary policy increases money supply to stimulate growth; contractionary policy reduces it to control inflation.
Example
When the central bank lowers interest rates, borrowing becomes cheaper, encouraging spending and investment.